Let me start by telling a story that my grandmother told me in my childhood.
Once upon a time, in a far off land, there was a forest where all the animals lived in peace. They were ruled by a tyrant rooster. Each morning at dawn he will wake up everyone by his relentless crowing. Everyone believed that the sun rose only because of his crowing.Hence they treated him as their king and went out of their way to fulfill all his wishes.
This farce continued for several years. All animals served and the rooster thrived till one fateful day when the rooster got extremely drunk at night and could not wake up in the morning. When he finally woke up in the afternoon, he saw himself surrounded by all the animals, who then beat the hell out of him and made him leave the jungle.
Now back to the reality.
Saturday evening the worst fears of several armchair economists came true when RBI governor Raghuram Rajan declared that “While I was open to seeing these developments through, on due reflection, and after consultation with the government, I want to share with you that I would be returning to academia when my term as Governor ends”. In more blunt terms, i will interpret it as interpreted as- Rajan wanted to continue, but the govt asked him to put his papers and refused to give him an extension.As far as my personal opinion goes, Rajan had it long time coming.
However it led to a massive frenzy among the Rajan lovers. A renowned columnist who had earlier made doomsday prediction that 100 billion dollars will flow out of India if Rajan was removed, suggested that govt should go with a begging bowl to Rajan and appease him to take an extension and even turn a blind eye to his anti-govt rhetoric. How can we let our savior just walk away?
Another expert stated on another TV show that come Monday morning and let the markets open, the Rupee will hit 70 against the dollar. The female editor of a business news channel declared Rajan’s sacking as the fall of the lone warrior who had dared to take a stand against crony capitalists. News anchors reminded of dire warnings by some brokerages of how there will be a huge price to pay for stocks and the currency if Rajan were to be removed. Some were even debating whether Nifty will open below 8000 to eventually fall to Feb lows of sub 7000. Some said that removal of Rajan has destroyed government’s credibility and it will be the death of our growth story. Fear mongering and making sensational end of the world predictions remains one of the best way for news channels to grab eyeballs and boost ad revenues.
Then came Monday morning. The sun rose.Most foreign brokerages had realized that Modi govt had called their bluff. Some started coming out with notes that long term India growth story won’t be impacted much and exit of Rajan is just a passing issue.
Modi haters who were celebrating when markets opened half a percent lower, were stunned when Nifty and Sensex recovered all their losses in the first hour itself.Some started making stupid conspiracy theory that the govt was buying stocks as a fall in markets because of Rajan’s removal will hurt its image. Stocks flew all of Monday as market cheered the sacking of the tyrant who removed from reality, was out to impose his crazy economic theories on our financial institutions in the name of fighting imaginary inflation.
The media spectacle around Rajan reminds me of the big question of the last decade- what will happen to our cricket team when Sachin Tendulkar will retire? Well, the great man did retire and left behind a legacy that may never be surpassed. But guess what, Indian cricket moved on. Our new batch of young players went on to capture top ranking in both test and limited overs format, won ICC Champions trophy, whitewashed Australia in their home and have taken the unbeaten streak in World Cups against Pakistan to 11-0.Just as our cricket team managed to survive and recover after retirement of Sachin, similarly the RBI too will survive and thrive post Rajan and will find new leadership that will lead the institution to new heights.
Now that the 3 day media spectacle is over, time to shift the focus back on stock earnings and chart patterns, the only two things that really matter. The Nifty has strong momentum on weekly charts. However it faces strong resistance at 8300, the critical level from where the index had a meltdown last August and again in October. Once this level gets taken out, I believe all time highs for the Nifty will take just a few weeks to come. I continue to maintain my original view that Nifty is headed to 11000 next year.