(Bloomberg) --
Before the trading day starts we bring you a digest of the key news and events that are likely to move markets. Today we look at:
- ‘Modi Stocks’ face caution
- Higher yields to spotlight banks
- Derivatives trading hits turbulence
Good morning, this is Ashutosh Joshi, an equities reporter in Mumbai. Stocks seem poised to start trading on a firm note on the federal budget day, buoyed by gains in the rest of Asia. Although sentiment remains positive, one can expect increased volatility during the course of Finance Minister Nirmala Sitharaman’s speech. The India VIX, known as the fear gauge, has risen for five straight days leading up to the event, marking its longest run in over two months.
‘Modi Stocks’ face investor caution before budget
The ‘Modi Stocks’ — a term coined by CLSA for a group of companies benefiting from Prime Minister Narendra Modi’s policies — are in focus ahead of today’s budget. An index compiled by Bloomberg News tracking these stocks has dipped about 0.4% this month, after eight months of gains, even as the broader market has seen modest increases. Investors, cautious about these companies, which range from power generators and capital-good makers to building materials firms, are watching the budget for capex trends and sector-specific initiatives.
Higher yields could spotlight bank stocks
Traders are wondering if the government will use its extra fiscal space to further cut bond borrowings. Goldman Sachs estimates a 500-billion rupee cut, while State Bank of India expects a reduction of 600 billion rupees. Despite a Bloomberg poll’s base case of 14.1 trillion rupees, traders say that if borrowing isn’t lowered, the market may be disappointed. That may lead to a rise in yields and put shares of state-owned banks holding government securities in focus.
Will the budget tackle derivatives market concerns?
India’s booming equity derivatives market has been a cause of caution in recent months, with signs pointing to potential measures to curb the explosion in retail participation. The finance ministry’s economic survey on Monday flagged the need to closely monitor risks in this segment. Market participants are wondering if the budget may announce tax changes on income from equity futures and options to discourage small investors.
Analysts actions:
- JSW Steel Cut to Neutral at YES Research; PT 911 rupees
- UltraTech Cement Raised to Add at Avendus Spark
- Wipro Cut to Sell at Avendus Spark; PT 460 rupees
Three great reads from Bloomberg today:
- Indian Banks Short-Term Debt Rise to 12-Year High on Loan Demand
- Xi Cements Role as ‘Chief Economist,’ Shrinking Space for Debate
- Ozempic Copycats Flooding Market Raise Safety Questions
And, finally..
A private capex cycle in India is underway, according to Bloomberg Economics’ new Corporate Fundraising Index. Banks are extending more loans as non-performing assets keep declining, and companies are issuing more equity, taking advantage of high valuations. But, a hiccup in June — as capital raised through banks suffered the first drop in eight months — is a sign that the RBI’s tight monetary policy is starting to spoil the party.
--With assistance from Alex Gabriel Simon and Subhadip Sircar.
©2024 Bloomberg L.P.
