Raghuram Rajan
Raghuram Rajan

Guv says RBI has made ‘prudential contingency plans’ with FinMin and Sebi to infuse liquidity into financial markets in case an unexpected election result today leads to market volatility.

Shimla :  The Reserve Bank, Sebi and the Finance Ministry have drawn up a contingency plan to deal with any excessive market volatility when results of the general elections are declared today.

Most exit polls project the Bharatiya Janata Party led-NDA to return to power at the Centre after a gap of 10 years. “We assured the board that we are in discussions with the Finance Ministry and Sebi. We have placed prudential contingency plans to infuse liquidity, if needed. We hope that everything will go normally tomorrow when the election results are announced,” Governor Raghuram Rajan told reporters after a meeting of the Reserve Bank of India’s central board.

The benchmark BSE Sensex has rallied over 1,500 points in the past five trading sessions and closed at a record on Thursday, while the rupee appreciated to 59.29 against the US dollar, the highest level in more than nine months.

Both the stock and forex markets are expected to remain volatile when votes are counted today.  Apart from Friday, market authorities would be keeping a special watch on May 19 (Monday) also to ensure there are no disruptions of any kind.

“We are ready for any unusual movement in the market. We are ready with the guidelines as to what action to take in what situation,” ASSOCHAM quoted Sinha as saying.

“Exchanges are looking into as to what are the clients’ collateral positions, the brokers’ collateral positions. We are conducting a daily stress test and we are more than satisfied that our risk management systems and payment and settlement system is going to work fine,” the association quoted Sinha as saying.

Sebi ups scrutiny

A special team at Securities and Exchange Board of India (Sebi) is keeping a close tab on stock movements, while another team would also be monitoring the election results as they get announced to understand whether price movements are linked to outcomes in various constituencies, sources told PTI.

The stock movement of companies related to Gujarat and many others are being closely watched as they have witnessed huge rallies in recent weeks.

Besides, stock exchanges have put in place various circuit filters to stave off excessive volatility in stocks as well as derivatives segments. Brokerages have sent out advisories to clients, while trading exposure based on margins — the multiples of the cash position that investors are allowed to trade in — is also being curtailed for intra-day trades.

Both, BSE and NSE relaxed the dynamic price bands for stocks that trade in the derivatives segment with effect from May 13. On May 18, 2009 — the day when results of last Lok Sabha polls were announced — the Sensex posted its biggest ever gain of over 2,100 points in just one-minute trade after investors were enthused by a decisive verdict in the then concluded general elections.   The experience was another extreme on May 17, 2004 as financial markets crashed after the ruling National Democratic Alliance suffered a surprise defeat in the 2004 elections.

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