Fresh High for Indian Stocks Masks a Stealth Correction

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Good morning, this is Savio Shetty, an equities reporter in Mumbai. The rupee will be the center of attention today after its sudden slump on Friday sparked turmoil across dealing rooms. Focus will be on how policymakers respond to the Indian currency’s drop to a record low. Stocks also ended lower in the last session, with the Nifty snapping a two-day advance amid weak global cues and fading expectations of a Fed rate cut in December. Even so, the benchmark capped a second straight week of gains. Analysts say the near-term tone remains broadly positive as the festival and wedding season is expected to boost demand, with any progress on the US–India trade deal likely to act as a key catalyst.

Rupee’s Friday slump leaves traders on edge

The rupee’s drop past the 89-per dollar mark came as the RBI appeared to ease up on the strong currency defense it had maintained in recent weeks. Without the central bank’s firm market presence, a surge in dollar demand and a wave of triggered stop-loss orders sent the currency tumbling, with the panic spilling over into the stock market. The rupee remains under pressure as uncertainty persists over the timing of a trade deal. ANZ analysts note that the RBI may be reluctant to keep deploying reserves indefinitely.

Fresh high for stocks masks stealth correction

As traders come to terms the rupee’s sharp drop, a growing divergence is emerging in the local equity market. While benchmark indexes are near record highs, many underlying stocks remain under pressure, according to Nitin Chanduka, a Bloomberg Intelligence analyst. The median fall from peak among BSE 500 index members stood at about 18% just after the benchmark briefly hit a record high. That’s steep compared with periods when the gauge trades within 2% of its 52-week high. A large swath of stocks falling sharply from their peaks suggests many individual portfolios are underwater even as headline numbers signal recovery. Mid-cap stocks also show a similar pattern, according to BI.

Demand returning to vehicle financiers

Meanwhile, some stocks such as those of vehicle financiers are rebounding amid a demand pick-up. Incred is bullish on the sector despite September-quarter disbursements remaining soft both year-on-year and sequentially. Demand has surged since October, particularly in passenger vehicles and small and light commercial vehicles. Used-vehicle demand, too, has strengthened as inventory levels improved, the analysts note. Incred is bullish on Shriram Finance, which is ramping up new vehicle loans.

Analysts actions:

Three great reads from Bloomberg:

And, finally.. 

The NSE Nifty 50 Index’s flirtation with record highs proved short-lived — the benchmark quickly reversed to close near session lows on Friday. The fear gauge is sending a worrying signal: the India NSE Volatility Index has surged to its highest level since June. While volatility typically mean-reverts, its current spike hints at potential turbulence ahead. Traders are paying more for protection, reflecting rising anxiety as the US–India trade deal remains unresolved.

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--With assistance from Bhaskar Dutta, Ravil Shirodkar and Alex Gabriel Simon.

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