FDI reforms make market bullish despite 'Brexit' and 'Rexit'

On Friday last, Raghuram Rajan the Governor of the Reserve Bank (RBI) announced his decision to not continue in office in the following term. This decision was expected to demonstrate its repercussions on the market by the following Monday. With the fear of ‘Brexit’ still looming large, the share market was believed to be headed for collapse. However, despite the ‘Brexit’ fears and the announcement of ‘Rexit’, the market surged on Monday morning. The Centre’s decisions to allow 100% FDI in the defence sector and to ease FDI rules have both evidently enthused investors.

The last few days were gloomy for investors. The share market too anticipated anxiety due to the increasing inflation rate, the consequent retention of RBI rate of interest and the devaluation of the rupee to the US dollar not to mention the fact that Britain was all set to opt out of the EU. While the fears of ‘Brexit’ were mounting and the ambiguity surrounding the issue kept fuelling them and the apprehension of the investors both, the news of ‘Rexit’ slammed the scene. Raghuram Rajan’s decision to not continue in office for the following term, according to a few investors, could prove detrimental to the country’s interests. So, as a result of a combination of the ‘Brexit’ and ‘Rexit’ factors, the share market would end up just caving in, was what was foreseen for times after Friday.

However, on Monday the Central Government announced FDI reforms which include 100% FDI in the defence sector apart from easing of several rules which implied a greater flow of foreign investments. The response to the auction arranged by the RBI, of government securities too was very encouraging.

Thus although the market opened 178 points down due to the fears of ‘Brexit’ and the announcement of ‘Rexit’, it ended higher by 241.0 points at 26.447 and Nifty was up 68 points at 8238 points.