(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:
- Stricter derivatives rules
- Index funds are a hit
- Shadow lenders turn to riskier bonds
Good morning, this is Ashutosh Joshi, an equities reporter in Mumbai. Nifty futures signal a firm start, though the tone for the day will be set by earnings from four index members, including Maruti Suzuki India Ltd. Elsewhere in Asia, Bank of Japan’s decision is firmly in focus and traders are also braced for the Federal Reserve’s decision due later Wednesday.
Tougher derivatives rules puts BSE, brokers in focus
Sebi’s plan to curb volumes in equity derivatives will put a spotlight on India’s oldest stock exchange, BSE Ltd., and stock brokers. Angel One, which makes a good chunk of its earnings from clients trading in derivatives, may suffer the most. Investors are eager to see how brokers handle this tougher regulatory environment. The new uniform exchange fee and the increased capital gains tax have already dampened industry sentiments. Now, with SEBI aiming to actively curb volumes in options trading, the threat to brokers’ earnings is greater than ever.
Passive investments are a hit with retail investors
Index funds are becoming the next big thing in India’s $700 billion mutual fund industry, and retail investors are all over these low-cost options. Assets in such products have soared more than 25 times in last four years, topping 2.1 trillion rupees ($25 billion) in March, according to Zerodha Fund House. Both equity and debt products are sharing this growth almost equally. Nowadays, almost every mutual fund provider has an index fund to cater to this growing appetite.
Robust credit growth drives private financiers to riskier bonds
Shadow lenders are turning to bonds, including some riskier subordinated debt, to raise record amounts of money. This shift comes as tighter rules from the RBI are making it harder for banks to lend to these companies. They need the extra funds to support their double-digit credit growth, fueled by India’s fast-growing economy. On Wednesday, Cholamandalam Investment and Finance Co. will raise 20 billion rupees via subdebt notes, marking the largest such issuance by a private shadow lender in the country. Investors are responding well to this debt because it offers higher returns for the extra risk.
Analysts actions:
- HDFC Life Cut to Add at ICICI Securities; PT 739 rupees
- HPCL Cut to Hold at Anand Rathi Securities; PT 474 rupees
- JK Paper Cut to Hold at IDBI Capital Market; PT 582 rupees
- Jyothy Labs Rated New Buy at William O’Neil
- SRF Cut to Hold at Way2Wealth Brokers; PT 2,830 rupees
Three great reads from Bloomberg today:
- India’s Akasa Air Eyes Flights to Asia’s Tourist Hotspots
- ‘Dr. Doom’ Nouriel Roubini Is Looking to Launch His First ETF
- Big Take: Harris Erases Trump Swing-State Lead in 2024 Dead Heat
And, finally..
Indian authorities have removed 14-year and 30-year bonds from the index-eligible category, meaning foreigners will be subject to limits on investment in future issuances of these notes. This move had minimal immediate impact, as there are no current 14-year bonds among those affected and zero foreign investment in the 30-year green bond. However, it does shows though that Asia’s third-largest economy is less open to debt inflows than index providers likely anticipated, nearly a month after its inclusion in JPMorgan’s emerging market debt gauge. Consequently, long-end bonds suffered their most significant sell-off in nearly two months.
--With assistance from Divya Patil, Ronojoy Mazumdar and Chiranjivi Chakraborty.
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