(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. Indian stocks are looking to stretch their winning streak to six sessions, which would be the longest in over two months. Nifty futures are pointing to a positive start, despite looming concerns of US tariffs and rising bond yields. The stock benchmark’s close above the key 25,000 mark on Wednesday is no mean feat, but below-average trading volumes suggest that investors lack confidence. Bulls are winning for now, but they need a strong catalyst to get fence sitters to join the party.
Stock bulls cannot ignore rising bond yields
The adage goes: when stocks and bonds disagree, trust the bonds. While equities stretched their winning streak to a fifth session on Wednesday, borrowing costs for Indian companies are rising at the fastest pace in over two years. That could hurt small- and mid-sized firms already grappling with weak demand. If higher yields further squeeze profit margins, investors will have to rethink the lofty price-to-earnings multiples they are happy to pay at the moment.
Banks may drag Nifty earnings
The rising-rate backdrop is also straining the financial sector. Analysts have cut Nifty Bank Index members’ 12-month earnings estimates by 6% since April, reflecting concerns about slowing credit growth and shrinking net interest margins. As the CIO at Piper Serica Advisors observed, after software exporters, banks could become the next major drag on Nifty earnings. He sees banking stocks remaining under pressure until they are able to guide better on their cost-to-income ratio.
Regulatory thunderbolt strikes online betting
If higher rates test balance sheets, regulation is proving to be a risk for high-growth sectors. A proposed bill to ban betting apps — from fantasy sports to poker — sent Nazara Technologies shares tumbling 13% and puts pressure on unicorns like Dream11 and Mobile Premier League. A report suggests there are about 200 million users of fantasy sports apps in India — about the same as the number of equity trading accounts. But last year’s 28% GST levy already rattled investors, and this latest crackdown could trigger a fresh exodus from these stocks in the days ahead.
Three great reads from Bloomberg today:
Information technology may be hiding an opportunity. Their valuation premium to the benchmark NSE Nifty 50 Index is at a five-year low, now close to the 20-year average that has been a buying opportunity in recent years. While revenue growth concerns remain, the sector’s de-rating marks a healthier entry point, especially when compared with stretched multiples in other pockets of the market.
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–With assistance from Alex Gabriel Simon, Chiranjivi Chakraborty and Divya Patil.
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