High alert on stocks after Rexit; market cop ups vigil to limit fallout

NEW DELHI: Regulator Sebi and the stock exchanges have beefed up their surveillance and risk management mechanisms to ring-fence capital markets from any excessive volatility on Monday on account of RBI governor Raghuram Rajan's surprise decision against a second term. Banks and forex dealers are also gearing up to meet excessive money demand, especially for dollar, on concerns that Rajan's eventual exit this September could trigger capital outflows amid jitters among foreign investors. Maintaining that the Indian capital markets have a robust risk management and surveillance mechanisms in place, senior officials said they had beefed up the systems to check any adverse eventuality.

The regulator and the bourses would also keep a strict vigil for manipulators looking to exploit the volatile trends expected in stocks and derivatives, including those linked to the rupee's movement against other foreign currencies.

Besides, brokers, portfolio managers and other market intermediaries would be under a close watch for any attempts to lure small retail investors into promises of hefty gains from the futures and options trading, especially in banking stocks and indices. According to officials, the financial market regulators, including RBI itself, were already bracing for volatile trends ahead of the Brexit referendum this week, but Rajan's sudden announcement over the weekend has added to the worry. "Only respite is that Rajan chose a Saturday to make the announcement as any such development on a weekday during trading hours could have been much more serious despite a robust risk management and surveillance mechanism in place," a senior official said. The regulators are especially worried after having seen the markets going into a tizzy recently just on unconfirmed reports that Rajan was not keen on a second term. While announcing his decision against a second term after his current three-year tenure ends on September 4, Rajan himself referred to the "imminent sources of market volatility like the threat of Brexit", though he hoped that the RBI would be able to "ride out" these concerns. Rajan, who would have the shortest term as RBI governor since liberalisation in 1991, further said that "international developments also pose some risks in the short term". He also said that the RBI has "made adequate preparations for the repayment of foreign currency non-resident (B) deposits and their outflow, managed properly, should largely be a non-event", referring to the concerns that the maturity of these bonds in September-October could impact the markets in terms of sudden pressure on the country's forex reserves. Pointing out to the over $360-billion forex kitty, Rajan said it was a record high and reiterated confidence of comfortably weathering the NRI deposit repayments due soon without any hitches. Stating that he would always be available to serve the country when needed, Rajan also rued that his work on containing inflation and cleaning up the books of the banks was "yet to be completed". Speculations were rife for weeks over whether Rajan, a former IMF chief economist known to have predicted the 2008 global financial crisis, would get a second term amid no-holds barred attacks on him, including for his hawkish stance on interest rates. Fifty-three-year-old Rajan, who took charge as the RBI governor in September 2013, is credited to have stabilised the rupee amid volatile global market conditions and for containing inflation to a large extent.