The new RBI RaguramRajan in the two days in office has rocked Dalal Street. The BSESENSEX on Thursday and Friday has gained 703 points or 3.78% while the NSENIFTY has gained 2085 points or 3.81%. The BSEBANKEX and BANK NIFTY notched superb gains of 9.99% and 10.08% respectively. There were a number of reasons for this rally. The markets have responded to the change in guard at the Reserve Bank where RR the rockstar has taken over. Secondly the Indian Rupee has regained some of the lost ground after touching Rs 69 to close at Rs 65.24 against the previous week’s close of Rs 65.70. Thirdly the looming crisis over Syria where war was a couple of days away has abated and immediate threat stands withdrawn. Fourthly the BRICS nations have requested the US to phase out quantitative easing and not do it at one go which would hurt emerging markets. These factors put together have helped the markets record strong gains in the week ended 6th September.

Going forward there could be some further upward movement but one should not become overtly bullish as the ground realities have not changed. The government’s reluctance in raising diesel prices is beyond comprehension and logic simply because they have raised prices of CNG by 8.35% from Rs 35.95 to Rs 38.95. One needs to understand that CNG is used by rickshaws, taxis, city and state transport services amongst others. This means that sooner or later the cascading effect would happen and the “AamAadmi” would have to pay more for daily necessities as transport would become expensive. In the case of diesel, bulk consumers like the railways, defence and state transport corporations have over the past few quarters paying much higher rates than the street price of diesel. Unfortunately the humble 2 wheeler or scooter which is a vehicle used by the middle class and lower segments of society have to use petrol as the fuel as one till date does not have diesel run scooters. The bulk of the users who remain are now those who have bought cars, SUV’s and other such diesel guzzling cars who can well afford diesel at Rs 70 as well. The government needs to raise these prices once and for all otherwise all talk of keeping the current account deficit and fiscal deficit at predetermined levels will remain only on paper and even RR the Rockstar would not be able to do much to the economy.

Well the markets have welcomed RR with all guns blazing. As mentioned there have been many reasons attached to the smart rally and one must not get carried away with the same.