(Bloomberg) -- Sovereign bonds rose in India after the government resisted pressure to deliver a major fiscal support package to boost the economy, and stocks rallied after early volatile trading as U.S. President Donald Trump said China has asked to re-start trade talks.
The yield on the benchmark 10-year bond fell nine basis points, the most since July 29, to close at 6.48%, as fears the government may borrow more to fund stimulus eased. Equities bucked the selloff in Asia as trade tensions that roiled stocks globally eased somewhat after Trump's comments.
Finance Minister Nirmala Sitharaman Friday scrapped a tax on global funds, allowed concessions on vehicle purchases and hastened an infusion of an already announced 700 billion rupees ($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 2.2 percent, the biggest gain in three months, after changing direction at least six times in the first few hours of trade. On Friday, the gauge completed a sixth week of losses in seven as investors weighed the outlook for growth amid signs of slowing local demand and concerns over the U.S.-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.”
READ: China tariffs may stifle stimulus gains in India assets: Roundup
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 RBI will help the government meet its goal of narrowing its budget deficit over time.
--With assistance from Kartik Goyal.
To contact the reporters on this story: Subhadip Sircar in Mumbai at ssircar3@bloomberg.net;Ameya Karve in Mumbai at akarve@bloomberg.net;Nupur Acharya in MUMBAI at nacharya7@bloomberg.net
To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Ravil Shirodkar
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