(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:
- Small cities, big opportunity
- Microfinance is overheating
- Tile makers miss rally
Good morning, this is Chiranjivi Chakraborty, an equities reporter in Mumbai. Looks like we’re set to open lower this morning as Nvidia’s underwhelming earnings weighs on Asian markets. The silver lining is that there are no major AI-linked names listed in India. That said, all eyes are on Reliance Industries’ shareholder meeting today for cues on the listing of the conglomerate’s telecommunications and retail giants.
Big opportunity in small cities for retailers
India’s smaller cities are shifting toward branded goods and services, opening up a $600 billion market for retailers, according to Sanford C. Bernstein. They predict that the local organized retail sector could spread to as many as 1,000 cities. Bernstein favors retailers like Trent and Avenue Supermarts over restaurant chains like Jubilant Foodworks, which runs Domino’s Pizza, and KFC India operator Devyani International. It’s no wonder that shares of Trent and DMart have outpaced fast-food chains this year.
Small loans boom sparks overheating concerns
The surge in microfinance lending is raising concerns about overheating, forcing lenders to slow new loans. A summer heat wave and prolonged national elections have worsened delinquencies, leading to a 24% drop in disbursements in the June quarter, following a 30% slump in the previous three months, according to India Ratings. It may take two more quarters for a complete recovery. Meanwhile, top players like Spandana Sphoorty and CreditAccess have seen stock prices fall over 7% this month, with expectations of a slower recovery suggesting further correction ahead.
Tile makers miss out on real estate rally
Despite real estate being among the best-performing asset in recent years, Indian tile makers have struggled to benefit. Shares of major players like Kajaria Ceramics and Somany Ceramics are little changed this year, following another quarter of weak volume growth. The prolonged general election and the extreme heat have dampened construction activity. However, these companies may get a boost starting 2025, when realty projects launched earlier this year will near completion, according to ICICI Securities.
Analysts actions:
- Jubilant Food Rated New Outperform at Bernstein; PT 800 rupees
- Max Healthcare Rated New Add at Centrum Broking; PT 950 rupees
- Global Health Rated New Buy at Centrum Broking; PT 1,270 rupees
Three great reads from Bloomberg today:
- Nvidia’s CEO Says New Chip Will Have ‘Lots and Lots’ of Supply
- Paytm Scores Small Win as India Approves Investment in Arm
- Big Take: Giving Wamco’s Leech Free Rein Backfired for Franklin
And, finally..
Selling bonds to raise debt has been rewarding for Indian companies recently. Top-rated firms are paying 7.63% for three-year debt, versus 9.1% for a similar-tenor loan from the State Bank of India. This gap is the widest since December 2021, with ICICI Securities Primary Dealership predicting an increase in bonds sales this fiscal year.
--With assistance from Divya Patil.
©2024 Bloomberg L.P.
