Indian Capital Goods Stocks Regain Investor Favor

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(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:

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• Government action
• Capex plays in favor
• Adani Green shines

Good morning, this is Chiranjivi Chakraborty, an equities reporter in Mumbai. Traders are likely to look past Friday’s disappointing GDP growth data, as much of the slowdown has already been largely factored into the recent correction. Although Nifty index futures point to a muted start this morning, higher Asian markets may help support sentiment. Meanwhile, an expected ramp up in government spending to boost second-half growth should aid infrastructure stocks. Meanwhile, bond traders are looking ahead to a potential rally after the weak growth data has stoked hopes of an interest-rate cuts by the RBI.

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Growth revival hinges on strong government push

India’s economy looks to be at a crossroads. Either the government rolls out a large stimulus to lift consumption or ramps up infrastructure spending to drive GDP expansion. Motilal Oswal Securities expects household spending to remain sub-par over the next two-three years, while Marcellus Investment Advisers warned that middle class incomes would be hit by rising automation at work places. For investors, its time to reassess strategies. Consumer stocks may face headwinds, making infrastructure — or similar alternatives — a potentially smarter play. 

Capital goods stocks regain investor favor

Investors seem to have regained their appetite for infrastructure and engineering goods shares, with the sector gauges jumping 5% and 7%, respectively, over the past week. According to broking firm Antique, there’s been a pick up in new project announcements and tendering activity, which is expected to translate into contract awards for companies. Antique’s top bets among capital expenditure plays include NCC, HG Infra Engineering, IRB Infrastructure, BHEL, Siemens, Kirloskar Oil Engines, Transformers and Rectifiers and Hitachi Energy.

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Bulls lift Adani Green, bears circle DMart in F&O space

Of the 45 stocks that debuted in NSE’s futures and options (F&O) segment, Adani Green Energy stood out with a 22% spike last week. On the other hand, rapid commerce major Zomato and Avenue Supermarts operator DMart closed in the red. Nuvama Wealth Management Ltd. suggests that a strategy of shorting Avenue Supermarts while going long on Zomato could be a rewarding trade for the December series. For companies experiencing slowing earnings growth, inclusion in the F&O list is bad news as it gives bears the opportunity to target their stocks.

Analysts actions:

• RBL Bank Cut to Hold at ICICI Securities; PT 160 rupees
• JSW Infra Rated New Buy at ULJK; PT 411 rupees
• Cipla Raised to Buy at Prabhudas Lilladher; PT 1,730 rupees

Three great reads from Bloomberg today:

• Adani Says His Empire Will Emerge Stronger After US Bribery Case
• Trump Demands ‘Commitment’ From BRICS on Using US Dollar
• Big Take: A Roadmap Through Trump Tariff Dramas and Realities

And, finally.. 

Bond bulls are back in the game after data on Friday showed India’s economy grew at the slowest pace in almost two years in the September quarter. The yield on benchmark 10-year bond fell by nine basis points to 6.74%, driven by expectations that slower economic growth will prompt the central bank to cut rates sooner than anticipated. According to Quantum Asset Management Ltd., sustained foreign inflows tied to index inclusion and strong local demand may drive the 10-year yields down by as much as 50 basis points by mid-2025.

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—With assistance from Bhaskar Dutta and Kartik Goyal.

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