Before the markets open, we bring you a curated digest of the latest news and events set to impact trading. Today’s highlights include:
- Auto stocks’ reversal
- Surging hedging costs
- Ethanol price relief
Market Outlook: A Positive Start Amid Global Cues
Good morning! This is Ashutosh Joshi, reporting from Mumbai. Nifty futures signal a strong opening today, extending Wednesday’s rally. Asian markets are also trading in the green as investors analyze the Federal Reserve’s decision to pause interest rate hikes and earnings from major US tech firms. With the Union Budget approaching on February 1, options traders are bracing for volatility in India’s banking stocks. Hedging costs have soared, indicating heightened market fluctuations. Key players Larsen & Toubro and Adani Enterprises are set to announce their earnings today.
Auto Stocks Rebound, but Uncertainty Lingers
Auto stocks are showing signs of recovery after a bearish phase earlier this week. However, their earnings performance does not entirely support this comeback. Market leader Maruti Suzuki posted weaker-than-expected results due to rising input costs and a depreciating rupee. Hyundai India’s revenue remained stagnant, though its electric vehicle (EV) strategy offered some hope. Similarly, Tata Motors’ net income failed to meet analysts’ expectations. Despite lackluster festive season auto sales, companies have been compelled to offer significant discounts to boost demand.
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Rupee’s Slide Catches Companies Off Guard
The rupee’s sharp depreciation is affecting corporate earnings, forcing businesses to hedge their currency risks. As the worst-performing Asian currency in the past two months, the rupee’s decline surprised companies that had relied on the Reserve Bank of India’s (RBI) stability measures. With slowing domestic growth and increasing global uncertainties, hedging costs have surged, making currency risk management more expensive.
Ethanol Price Hike Sparks Rally in Sugar Stocks
Investors turned bullish on sugar stocks after the Indian government raised ethanol procurement prices for state-run fuel retailers. The ex-mill price for ethanol from c-heavy molasses has increased to ₹57.97 per liter from ₹56.58 per liter. Stocks of Shree Renuka, Balrampur Chini, and Bannari Amman Sugars surged following the announcement. With ethanol prices rising and sugar export restrictions easing, the sector outlook has improved.
Analyst Ratings and Stock Recommendations
- Ambuja Cements – Raised to Buy at Avendus Spark; Target Price: ₹625
- Tata Motors – Downgraded to Underperform at Jefferies; Target Price: ₹660
- Federal Bank – Downgraded to Add at ICICI Securities; Target Price: ₹210
Options Traders Brace for Banking Sector Volatility
With India’s Union Budget fast approaching, options traders are preparing for heightened volatility in banking stocks. The cost of hedging against fluctuations in the Nifty Bank Index has reached its highest level since June’s elections. Notably, these hedging costs surpass those for the broader Nifty 50 Index, reflecting expectations of significant price swings. Historically, the Nifty Bank Index has moved an average of 1.8% on budget days over the past decade, compared to 1.1% for Nifty 50. This pattern suggests that traders anticipate substantial market movement in the banking sector ahead of budget announcements.
Data Source and Image Credits: Bloomberg