Expensive Stocks Spur Split Positioning in India’s Markets

(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 Ashutosh Joshi, an equities reporter in Mumbai. Nifty futures signal another up day for Indian stocks, tracking gains in Asian markets. Overnight, US equities climbed to fresh highs. Indian stocks remain expensive even after the recent selloff, say some brokers. On a somber note, Ratan Tata, the patriarch of the biggest Indian conglomerate, died last night. 

A divided house: India’s market sees split positioning 

Indian equities are 5% off their peak from two weeks ago, but valuations haven’t seen a meaningful correction, says Kotak Securities. While foreigners are selling due to high valuations and China’s rebound, domestic investors’ dip-buying, which has exceeded foreign outflows, is puzzling to the brokerage.   

Retail set to drive next ETF wave

Exchange-traded funds now account for almost one-fifth of Indian mutual fund assets, with their share more than doubling in the last four years. Flows from the Employees Provident Fund Organisation have been the main driver of this growth, though Nomura expects retail participation to also increase gradually. Already, sectoral ETFs launched this year have seen robust flows, which could create a virtuous cycle where rising flows push stock prices higher, attracting even more investors in the process. 

NBFCs’ record issuance set to expand

Indian non-bank finance companies have raised a record sum from the bond market this year, and with borrowing costs set to drop, issuances by these so-called shadow banks may rise by another 10%-20% in 2025, according to Rena Kwok, a fixed-income analyst for Bloomberg Intelligence. The RBI’s shift to a neutral stance on Wednesday boosts the chances of a rate cut in December, she noted. 

Analysts actions:

Three great reads from Bloomberg today:

And, finally.. 

The US Presidential elections hold significant influence over global markets, including India’s $5 trillion stock market. With investors around the world keeping a close eye on the event, Indian equities tend to show some weakness leading up to the elections. The BSE Sensex Index has dropped in all but two of the one-month periods before each of the past eight elections since 1992, with an average fall of over 2%. This time around, the concern is even greater due to the close contest and fears that the likely escalation of tariffs on China may lead to a trade war. 

--With assistance from Ashutosh Joshi and Kartik Goyal.

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