(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:
- Property stocks to feel the heat
- ITC emerges as budget day winner
- Bond markets ignore borrowing cut
Good morning, this is Ashutosh Joshi, an equities reporter in Mumbai. We’re headed for a muted start this morning as investors digest the one-two punch from the hike in taxes on equities trading. With the event behind us, the anxiety has faded and the plunge in the India VIX — known as the fear gauge — is sending a message that this too shall pass.
Real estate stocks feeling the heat
Realty stocks are getting a hard look after being among the leaders of India’s market rally over the past year. Shares of big developers including DLF, Godrej Properties, and Macrotech Developers took a hit yesterday. The reason: the budget ended the indexation benefit, which used to let property owners adjust their purchase price for inflation, lowering their taxable profits. This change isn’t great news for anyone planning to sell old properties.
Budget stability boosts ITC’s prospects
Cigarette maker ITC emerged as the clear winner on a wild Tuesday for India’s market. The budget left taxes on tobacco products unchanged, providing stability for the sector for the foreseeable future. Jefferies responded by upgrading the stock to a ‘buy,’ predicting a potential upside of over 25% in the next 12 months. Additionally, with the Modi administration focusing on boosting employment, ITC’s staples business is also expected to benefit.
Traders eye RBI rate decision after ignoring borrowing cut
In the end, the cut to the government’s borrowing plan for the fiscal year ending March 2025 didn’t make much of a splash in the bond market. Although yields initially fell sharply when the fiscal deficit was announced, they settled back to Monday’s closing level of 6.97%. Traders were left unimpressed by the modest reduction in borrowing of around 100 billion rupees ($1.2 billion). Now, everyone in the $1.3 trillion bond market is looking ahead to the RBI’s policy decision in August for any signs of a more dovish stance.
Analysts actions:
- Bajaj Finance Rated New Neutral at Autonomous; PT 7,900 rupees
- HDFC Bank Cut to Hold at ICICIdirect.com; PT 1,850 rupees
- ITC Ltd Raised to Buy at Jefferies; PT 585 rupees
- Piramal Pharma Rated New Buy at ICICIdirect.com; PT 210 rupees
- Poonawalla Fincorp Reinstated Hold at ICICI Securities
Three great reads from Bloomberg today:
- Tesla Profit Falls Short Again as Musk Demands Investor Patience
- Big Take: Ex-Banker Ignites a $1.7 Trillion Japanese Stock Rally
- Mubadala-Backed Fortress Sees Assets Doubling to $100 Billion
And, finally..
Stocks in India have typically traded at higher valuations than their regional peers, driven by the nation’s status as the world’s fastest-growing major economy. But after nearly two years, these valuations are raising some red flags again. The Nifty is now trading at a one-year forward price-to-earnings ratio that’s more than one standard deviation above its long-term average. This could be a significant hurdle, potentially keeping the benchmark from reaching the 25,000 mark anytime soon.
--With assistance from Alex Gabriel Simon, Chiranjivi Chakraborty and Ronojoy Mazumdar.
©2024 Bloomberg L.P.
