A Flat Day For Equities, Gilts, Rupee

Highlights 

• Wires and cables companies’ shares tumbled 6-20% after UltraTech Cement announced a foray into the segment.
• Shares of NBFCs rallied on relaxation in risk weights
• Century Enka shares fall 10% after fire at Bharuch plant
• Prestige Estates slips 5% following income tax searches
• INOX India shares end 4% higher after bagging certification as cryogenic equipment maker 
• Tuhin Kanta Pandey, Ajay Seth contenders for new SEBI chief: Report

The benchmark equity indices—BSE Sensex and Nifty 50—ended little changed on the F&O expiry day. Indian indices opened slightly higher but remained range-bound as metal and banking stocks helped offset selling in others. The BSE Midcap index declined 1%, while the Smallcap index fell 1.6%.

Sectoral Performance

Among sectoral movements, the RBI’s decision to roll back the increase in risk weights for NBFCs led to gains for the non-bank lenders and select banks, with AU Small Finance Bank, RBL Bank, L&T Finance, Shriram Finance, and Chola Finance rising 3-6%.

UltraTech Cement’s entry into the cables and wires business led to 6-20% declines in Polycab, Finolex Cables, KEI Industries, and Havells.

The yield on 10-year government bond remained steady ahead of forex swap auction and the last scheduled weekly gilt auction of the current financial year.  

The Reserve Bank of India will conduct a three-year dollar/rupee buy/sell swap on Friday, while the government will raise ₹320 billion through sale of bonds.

Despite a sharp fall in the US Treasury yields, investors remained wary of adding longer duration debt on their portfolios. The RBI’s FX swap auction is supposedly to boost rupee liquidity, but it reduces the need for bond purchases via open market operations.

The Indian rupee ended nearly flat as the RBI’s dollar-selling interventions and MSCI-eelated inflows of about $1 billion kept the dollar supply elevated. Although foreign portfolio investors (FPIs) continued selling equities, causing the rupee to weaken to 87.41/$1 in early trade, the RBI's persistent dollar sales throughout the day helped stabilise the currency, keeping it within the 87.10-87.41 range per dollar.

Outlook

Foreign fund outflow has continued for the past 3-5 months due to various factors, including expensive valuations. Ongoing tariff-related concerns and the recent depreciation of the Indian currency has also made investors increasingly cautious.

Key Drivers:

• Global investor sentiment remained cautious as US President Donald Trump threatened to impose additional trade tariffs.
• Month-end dollar demand and supply fluctuations are expected to keep the rupee volatile within the 87.00-87.50 range

EVENTS AND DATA TO WATCH ON FRIDAY

• RBI to conduct $10 billion, 3-year dollar/rupee buy-sell swap auction
• India October-December GDP estimate and second advance estimate 2024-25 
• India government finances for January
• India core sector output data for January
• RBI  forex reserves data
• US January personal income and outlays data

CORPORATE ACTION  

• IIFL Finance board meets to consider a fund raise
• Rana Sugars to announce October-December earnings
• Som Distilleries & Brewerie board meets to consider a fund raise

OTHER EVENTS  

• Andhra Pradesh government to present Budget
• Roadshow on commercial coal mine auctions
• US President Trump to meet Ukrainian President Zelensky