Indian State-Run Banks’ Tepid Growth Spooks Investors

(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:

Good morning, this is Chiranjivi Chakraborty, an equities reporter in Mumbai. Nifty futures point to a positive opening this morning, boosted by Asian markets that are building on Wall Street’s rally. Bulls are hoping for a relief rally after Monday’s slump, which was driven by a combination of weak third-quarter business updates and concerns over the HMPV virus outbreak. Looking ahead, software services firms will be in focus as earnings season kicks off Thursday with Tata Consultancy Services‘ results.

State banks’ tepid growth rattles market

Union Bank of India and Bank of Baroda’s third-quarter business updates set the cat among the pigeons, sparking concerns among state-owned lenders as lackluster loan and deposit growth numbers rattled the market. The NSE’s sector gauge suffered its worst intraday tumble since June 4, as investors feared the weak trend would be mirrored across the sector. Given the wide local and institutional ownership in these lenders, poor December-quarter earnings may lead to a prolonged period of weakness in the cohort. 

Diagnostic firms see some reprieve

Signs of relief are emerging in the diagnostic sector as the intense price war is beginning to ease. Kotak Securities notes that sanity is returning to a market after a pandemic-driven surge in competition fueled by private equity-backed companies. Recent price hikes by Tata Group-owned 1MG in Mumbai and Delhi, as well as by Netmeds, have given established players like Dr Lal Pathlabs and Metropolis Healthcare some much-needed respite. That said, the sector is still not out of the woods, as investors fear they may not yet have seen the last of predatory pricing by online firms’ always eager to expand market share.

Weak earnings looms for metal shares as 2025 begins

Metal shares had a middling run in 2024, and the new year does not offer much hope, especially in terms of earnings surprise. Nuvama expects metal companies to report a subdued performance for the October-December period, with the EBITDA of major flat products players like Tata Steel and JSW Steel likely to drop 5% and 11%, respectively, over the preceding quarter. The drop is attributed to lower prices, although falling coking coal prices provided some relief. Steel Authority of India, on the other hand, may see a 41% jump in EBITDA quarter-on-quarter but is still expected to report a net loss, according to Nuvama.

Analysts actions:

Three great reads from Bloomberg today:

And, finally.. 

It’s not just foreign equity investors feeling the heat from the weakening rupee — bond funds are also going slow on their purchases. Morgan Stanley suggests that inflows into India’s fully accessible route bonds eligible for inclusion into global indexes may fall short of the $25 billion-$30 billion initially anticipated from passive funds. Analysts say pressure on the rupee and rising US Treasury yields are holding back flows. At present, India has a 7% weight in the JPMorgan Government Bond Index-Emerging Markets, and that’s projected to rise to hit maximum of 10% by March. 

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--With assistance from Kartik Goyal, Malavika Kaur Makol and Alex Gabriel Simon.

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