Stocks, bonds in India defy trade-war induced selloff in Asia

India’s Finance Minister, Nirmala Sitharaman. (AFP pic)

MUMBAI: Sovereign bonds rose in India after the government desisted from providing a large fiscal boost to the economy, and stocks rallied after early volatile trading as US President Donald Trump said China has asked to re-start trade talks.

The yield on the benchmark 10-year bond fell five basis points to 6.52% at 1:30pm in Mumbai, as fears about additional borrowing to fund the stimulus eased. Equities bucked the selloff in Asia after a subdued start as trade tensions that roiled stocks globally since Friday eased somewhat after Trump’s comment.

Finance Minister Nirmala Sitharaman Friday scrapped a tax on global funds, allowed concessions on vehicle purchases and hastened an infusion of an already announced INR 700 billion (US$9.8 billion) of capital in state banks. She didn’t outline any fiscal support the businesses had been calling for. Yields rose 22 basis points in the past three weeks on concerns that the government may spend more to pump-prime a slowing economy.

“With prospects of US-China trade talks restarting, both global and local markets have reacted positively,” said Rajiv Singh, chief executive officer at Karvy Stock Broking Ltd. “The global hangover had kept the market down despite a good opening. If the global geopolitical issues are contained, the pro-growth steps by the government will have more positive impact.”

The S&P BSE Sensex jumped almost 2%, after changing direction at least six times in the first two hours of trade. On Friday, the gauge completed the sixth week of losses in seven as investors weighed the outlook for growth amid signs of slowing local demand and concerns over the US-China trade spat.

“Indian equities were due for a rebound after a steep decline and Friday’s announcement provided that trigger, but the global cues aren’t conducive,” said Deepak Jasani, head of retail research at HDFC Securities in Mumbai. “We are still cautious on local equities and advise investors not to get excited by the upside.”

Bond traders are also focusing on a central bank board meeting later today, which will likely announce the final dividend that it will transfer to the government. The Reserve Bank of India will also consider the report of a panel studying how much reserves the authority should hold, according to an official aware of the development, the Bloomberg Quint reported.

Any transfer of surplus capital by the Reserve Bank of India (RBI) will help the government meet its goal of narrowing its budget deficit over time.