The central bank governor in India, whose tenure has coincided with a perceived improvement in that country's economic fortunes, is not seeking a second term. Wealth managers offer their reactions.

Wealth managers are disappointed, they say, at the decision by the governor of the Reserve Bank of India, Raghuram Rajan, not to serve a second term. India has been seen as one of the more promising emerging market stories of recent years. Here is a selection of comments.

Salman Ahmed, chief investment strategist, Lombard Odier Investment Managers
The news that Rajan, RBI Governor, declined a second term is a negative for Indian asset markets, especially for currency and bonds. That said, Rajan during his tenure has instituted several groundbreaking reforms for the Indian economy including the formal adoption of inflation targeting while taking steps to add dynamism to the state-owned banking sector. We think these reforms are unlikely to be reversed and will continue to add a strong foundation to the Indian central banking framework, which has certainly become more transparent and focused in recent years.

Over the short term, uncertainty around the expiration of FCNR deposits and the future path of monetary policy are likely to become the market’s focus, especially, given the prospect of strong outflows, if the scheme is allowed to expire in coming months. In addition, much will depend on the philosophy and profile of the new governor in order to assess if the confidence enhancing steps taken by the RBI under Rajan’s tenure are weakened or not.

Our fundamental-driven approach continues to show India as one of the strongest emerging market local currency sovereign credits, given low oil prices, positive reforms and improving macro dynamics. Overall, we continue to believe that the fundamental driven case for India remains intact though uncertainty is likely to remain high till clarity emerges around Rajan’s successor and any subsequent shifts in RBI policies. 

Sanjay Sachdev, executive chairman of ZyFin, the asset management house
We have seen many positives over the weekend: positive news for GST (Goods and Services Tax), good monsoon progress and change in “Brexit” referendum sentiment towards the remain camp. We maintain our positive stand and continue to favour bonds. Even with Rajan leaving, India’s world-beating economic growth, stability and improvements to its current account and fiscal deficits have made it an attractive investment destination in an uncertain world. 

Solid carry returns will also keep investors interested in India. India’s rich valuations reflect the comfort of investors with respect to its superior macroeconomic position versus other EM countries, its improving growth prospects on the back of economic reforms implemented by the government over the past two years and challenges in several other EM countries.

Kunal Desai, manager of the Neptune India Fund
Whilst the timing of Rajan’s departure from the Reserve Bank of India over the weekend surprised many, the implications must be kept in context. The investment story of improving macro fundamentals, a sharper focus on micro reforms and a rejuvenation of corporate profitability will be little affected by Rajan’s decision to return back to academia in the US.

That said, his tenure at the helm of the RBI has been an unequivocal success. His international credibility, vision and courage has meant that Indian macroeconomic fundamentals are in a far stronger position than those that he inherited. Growth is accelerating, fiscal and current account deficits continue to shrink, inflation has contracted, FX reserves are touching all-time highs whilst rupee volatility has been deftly managed.

Looking ahead, the appointment of his successor over the coming months will be an important moment. We would be looking for an independent replacement who continues to carry forward Rajan’s legacy, particularly on inflation targeting and the clean-up of the banking sector’s stressed assets. There are a number of suitable candidates who we would consider appropriate to continue his good work. Rajan himself noted last week that “the central bank will survive any governor, it’s important not to personalise this office” and - like much of his tenure at the RBI - we would concur with him.