Equity markets ended lower on Monday as the appointment of Urjit Patel as the new Reserve Bank of India (RBI) governor is seen as a move likely to dent hopes of aggressive interest rate cuts.
The BSE Sensex closed down 91 points, or 0.3%, at 27,985.54.
The broader NSE Nifty ended 38 points, or 0.4%, down at 8,629.15 points.
On the forex markets, the rupee also hit a near one-month low of 67.23 against the dollar in Monday’s trading versus its previous close of 67.06.
While Patel’s appointment will bring stability and continuity to the policies initiated by the present RBI governor Raghuram Rajan, he is also seen more hawkish, and may not cut interest rates quickly as some had hoped for, said experts.
The government on Saturday appointed deputy governor Patel as the new governor of RBI to take over from Raghuram Rajan whose term ends on September 4.
“Patel is known to have very little tolerance for inflation overshooting the RBI’s comfort zones. With the next policy review due in October, any rate cut hopes have dimmed,” said Amar Ambani, head of research at IIFL.
India’s wholesale price index (WPI) inflation accelerated to 3.55% in July from 1.62% in June, the fastest in 23 months.
Patel spearheaded the existing flexible inflation targeting framework, argued for maintaining positive real rates (1.5-2%) and is seen conservative.
Tech, banks and auto stocks were among the key losers on Monday.
State Bank of India and Axis Bank ended 1.4% lower and ICICI Bank was down 0.7%. Hero MotoCorp, Mahindra & Mahindra, Tata Motors and Maruti Suzuki were also down by about 1%. Tata Consultancy Services and Wipro declined 2% and 1% respectively.
“The market believes that the prospect for a rate cut in the near term is unlikely as the priority will be to contain inflation,” said Vinod Nair, head of research at Geojit BNP Paribas Financial Services.
A mixed trend in global markets also weighed on the Indian stocks. On Sunday, the US Federal Reserve vice-chairman Stanley Fischer gave an upbeat assessment of the US economy, and many feel a clearer signal will emerge on its interest rate hike plans in the next few days.
Asian stocks ended mixed with Korea’s Kospi and China’s Shanghai Composite Index closing down, while Japan’s Nikkei Stock Average and Hong Kong Hang Seng rose. Most European stocks, on the other hand, were trading in the red.