Indian Rupee Becomes Second Worst Asian Currency This Quarter

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(Bloomberg) — Before the trading day begins, we present you with a summary of the major news and events likely to move markets. Today we take a look at:

• Nifty Group Set for August Break
• Ratings warning similar to 2007
• Shifts in the performance of the rupee

Good morning, I’m Ashutosh Joshi, the stocks correspondent in Mumbai. Correction warnings have piled up, with equity valuations stretched and a seasonally weaker month. Traders are also facing a sea of ​​red across Asian stocks after a heavy sell-off in US tech overnight. It remains to be seen whether dip buyers will step in to help the Nifty post a ninth week of gains.

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Nifty August Start: A Prelude to Sideways Movement

While the Nifty 50 had a strong start, crossing the 25,000 mark on Thursday, history suggests this month could be more focused on consolidating gains than the post-election rally. The benchmark has gained just 1% over the past decade. With several technical indicators pointing to overheated market conditions, stocks are likely to drift sideways in the coming weeks as traders look for fresh signals to push forward.

Ratings Cast a Shadow Over Indian Stocks

Expensive valuations have long been a feature of Indian stocks, but the recent surge has pushed them to new heights. Some strategists are comparing this scenario to the peaks seen in 2007 before the financial crisis. According to Nuvama Institutional Equities, domestic stocks are currently at extreme levels based on absolute valuations, market breadth, and relative comparisons. This could lead to below-average returns over five years, perhaps below 5% CAGR, with a high risk of significant declines. However, strong investment inflows make it difficult to predict when the market will peak.

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Rupee Sees Shift From Outperformer to Underperformer

After a strong first half of the year where it outperformed its emerging Asian peers against the dollar, the rupee is now the second-worst performing currency this quarter, slightly ahead of the Taiwanese dollar. The shift coincides with a weakening dollar as market expectations of a rate cut in the US grow. The Reserve Bank of India’s policy of dampening currency volatility by adding or reducing record high foreign reserves has played a major role. This strategy sees the rupee outperform when the dollar is strong against its regional peers, but lag when the greenback is on the defensive.

Analyst actions:

• ACC share price cut in Dolat Capital to Rs 2630
• Ambuja Cements share price cut to Rs 616 on DSE
• GE T&D India upgrades Prabhudas Lilladher to Hold
• HeidelbergCement India to sell stake in Elara Secs India
• New Street Research downgrades Reliance to Neutral; PT Rs 3,400
• Welspun Living share price cut to Rs 209 on Sushil Finance
• Tata Steel to sell shares on Investec; Rs 135

Three great reads from Bloomberg today:

• JPMorgan monitors Indian bond liquidity after investor curbs
• Major report: 600% surge shows green energy cable makers’ profitability
• Modi Can’t Build the Military India Needs This Way: Mihir Sharma

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Finally..

After lagging behind some regional peers earlier this year, Indian stocks are quickly catching up. The MSCI India index has jumped more than 20% this year, closing the gap with Asia’s best performer, Taiwan, from 20 percentage points in early July to just 13 percentage points. Despite some unexpected setbacks, the influx of cash has been propelling local stocks higher. Second-quarter earnings in June started off lackluster, but investors see this as a temporary blip given the country’s strong economic growth outlook.

—With assistance from Chiranjeevi Chakraborty and Alex Gabriel Simon.

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