Rate Cut Hopes Put India’s Stocks Into Rally Mode

(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 indicate a flat opening, as key Asian markets trade mostly lower this morning. Tuesday’s large foreign inflows into local shares will likely keep bulls in the game, as worries over a slowing economy and weaker-than-expected companies earnings gradually ease.

Bad news fades as rate cut buzz fuels optimism

The growing clamor for rate cuts has given local shares a boost, with the Nifty rising over 2% in three days and the small-cap gauge nearing its previous peak. While Friday’s monetary policy announcement will set the tone for the short term, some investors are gearing up for a longer stretch of gains. Quant Mutual Fund, with $11 billion in assets, said it is close to being fully deployed after holding cash, signaling to its investors that the time is ripe for taking an optimistic view on select sectors. 

Unilever’s ice cream move sweetens sector outlook

Hindustan Unilever’s decision to spin off its ice cream business into a listed firm, instead of selling it outright, has piqued investor interest in consumer firms within the sector. While most ice cream makers in India are unlisted and have limited reach, analysts at ICICI Securities view Hatsun Agro as a likely gainer. With brands like Arun and Ibaco, the company stands to gain from its strong parentage and distribution channels, while smaller players, including those run by cooperative firms, face challenges.

Realty stocks defy economic woes

If the domestic economy is slowing, real estate stocks clearly didn’t get the memo. The sector has been on a tear, with the Nifty Realty index up 35% so far in 2024. It seems like Murphy’s law is working in reverse — anything that can go right, is going right. According to UBS, this is the first time the sector is seeing an ideal confluence of factors: low inventory levels, affordable prices, supportive regulations, developers carrying less debt, a likely drop in interest rates, and a favorable demographic mix. realty

Analysts actions:

Three great reads from Bloomberg today:

And, finally.. 

Options traders are turning more pessimistic about the rupee following a sharp slowdown in the nation’s economic growth. On Monday, the volume of dollar-rupee calls trading climbed to $1.9 billion, more than triple from about $600 million on Friday, data from the Depository Trust and Clearing Corp. show. The surge in bearish bets has been accompanied by a spike in the rupee’s one-month implied volatility, disrupting the calm that has characterized the local currency market this year. The rupee hit a new low of 84.7625 per dollar on Tuesday, and is projected to weaken further, possibly reaching 86 by the final quarter of 2025, according to MUFG Bank. 

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--With assistance from Santosh Nair, Subhadip Sircar and Kartik Goyal.

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