Raghuram Rajan exit: 'Change of guard at RBI won't affect domestic markets'

It is not logical to argue that huge FII outflows would happen post the RBI governor exit. Since September 2013, India could attract cumulatively roughly about $29 billion, which is about $10 billion, on an average, per annum. India didn't see any massive inflow because of change of governor post-2013 and hence, there is no need for any fear that the FII flows will go out in a significant manner.

In the midst of global deflationary fears, forced Asset Quality Recognition has led to massive losses for the PSU banks. About 23 PSU banks had posted collectively a net profit of Rs 12,772 crore in March FY2013 quarter – the same banks have posted a combined net loss of Rs 23,437 crore in March 2016 quarter. Such compulsions led to huge stress on the PSU banks and about half of the PSU banks have posted de-growth year on year (yoy) in their credit. Collectively 24 PSU banks have posted just 2% yoy credit growth as of March 31, 2016. Such a massive hit on their business is quite unprecedented. Massive losses of the PSU banks have already started helping the private banks to grow their deposits much faster.

It is true that India's forex reserves rose by about $75 billion from $276 billion in September 2013 to $351 billion as of December 18, 2015. However, during the same period, the external debt also rose by $80 billion from $400.3 billion as of September 30, 2013 to $480.2 billion as of December 31, 2015.

It is also argued that India's inflation was brought under control – this argument is highly illogical. Inflation fell because prices of crude oil crashed to 12-year low and also prices of resource (like coal, iron ore, etc) and metals fell very badly in the last three years. Even crop prices fell to a six-year low globally. On the contrary, the RBI was firm on its "inflation worry" for a very long period when many major economies were worried about deflationary pressures and in fact, some of them had fixed even higher inflation target. Global deflationary pressures kept even retail inflation under check even though the monsoon failed for two consecutive years.

The monetary authority in India gave misplaced concern on inflation at the cost of economic growth. Post new government, the Sensex hit a lifetime high of 30000 purely on hope, but it was not sustained as the corporate earnings failed to grow significantly. What would matter most to the domestic equity market are the performance of ongoing monsoon and corporate earnings outlook rather than change of guard at the RBI.

The writer is founder & managing director, Equinomics Research & Advisory Pvt Ltd