Gilt Yields Climb on Fiscal Concerns; Rupee Weak, Equities Hold Steady

HIGHLIGHTS

• GST rate rationalisation faces revenue hurdles, retailers urge quick clarity
• L&T might consider listing realty business in FY27 or FY28
• IREDA sets FY26 revenue target, projects 22% topline growth for the year
• YES Bank shares rise up to 5% after SMBC gets RBI nod to increase shareholding
• Godrej Properties reports ₹10 billion sales in second Hyderabad project launch

Indian equities ended higher on Monday, led by strong gains in technology stocks and a sharp rally in paper companies. The Nifty index closed in positive territory, supported by optimism across select sectors despite mixed broader cues.

Sectoral performance
Information technology stocks were the standout performers, with four of the top five Nifty gainers coming from the sector. Tata Consultancy Services, Infosys, HCLTech, and Wipro advanced between 1.5% and 3% after several brokerages turned bullish on earnings prospects. The Nifty IT index rose 2.3%, extending its recent upward momentum and reinforcing sentiment that the sector may have entered a cyclical recovery.

Hero MotoCorp and IndusInd Bank also posted modest gains of around 1–2%, despite confirmation that both stocks will soon exit the benchmark Nifty 50 index. On the other hand, capital market-linked counters lagged, with BSE Ltd and Angel One declining 2–3% on profit-taking.

Paper manufacturers staged a sharp rally after the government tightened certain import norms, boosting hopes of stronger domestic demand. Tamil Nadu Newsprint and Papers, Malu Paper, West Coast Paper, and JK Paper surged between 10% and 17%, making the sector one of the session’s top gainers.

In the broader market, the Nifty Bank index eased slightly, while midcap stocks remained resilient with moderate gains. Among individual movers, Vodafone Idea rose 5% to extend Friday’s rally, while PG Electroplast, IRB Infrastructure, and Jindal Stainless climbed over 3% each, helped by expectations of an exit from the futures and options ban list.

Top Gainers	% Change	Top Losers	% Change
NIFTY IT	2.37%	NIFTY MEDIA	-1.67%
NIFTY REALTY	0.75%	NIFTY PSU BANK	-0.25%
NIFTY METAL	0.65%	NIFTY FMCG	-0.10%
NIFTY CONSUMER DURABLES	0.57%	NIFTY FINANCIAL SERVICES	-0.04%
NIFTY PHARMA	0.44%	NIFTY BANK	-0.02%

Indian government bonds ended weaker on Monday as persistent fiscal concerns overshadowed early optimism from global cues. The benchmark 10-year gilts yield climbed to 6.5967%, its highest level since March 27, after closing at 6.5510% on Friday. This comes on the back of last week’s sharp 15-basis-point rise, the steepest in over three years.

Traders continued to pare holdings amid fears that the government’s proposed overhaul of the goods and services tax (GST) could worsen fiscal slippage. The plan, which seeks to streamline GST into two slabs of 5% and 18% while scrapping the 12% and 28% rates, is set for discussion at the upcoming GST Council meeting on September 3–4. Market participants worry such reforms may require additional borrowing, adding pressure on bond supply.

Investor sentiment was further dampened after Fitch Ratings maintained India’s sovereign rating, highlighting still-elevated fiscal deficits and debt levels. This stance contrasted with S&P’s recent upgrade, and reinforced caution in the market.

While yields had briefly eased earlier in the day after Federal Reserve Chair Jerome Powell signaled room for a potential September rate cut, concerns over India’s fiscal trajectory ultimately dominated. Traders now expect volatility to persist as both domestic fiscal and global monetary policy developments unfold.

Tenure	Today	Previous
10-year Gilt	6.60%	6.55%
5-year gilt	6.32%	6.29%
5-year OIS	5.75%	5.73%

The Indian rupee slipped on Monday, surrendering early gains as renewed concerns over steep US tariffs on Indian exports triggered steady dollar demand from importers. The currency closed at 87.58 per dollar, slightly weaker than Friday’s 87.53. It had opened stronger at 87.39 and briefly touched a high of 87.3450 before persistent dollar-buying dragged it lower.

Market sentiment remained fragile as Washington prepared to impose additional tariffs of up to 50% on Indian goods starting Wednesday. These come on top of the existing 25% levies, with the latest escalation tied to New Delhi’s continued imports of Russian crude. Traders fear stalled progress in Russia–Ukraine peace talks leaves little room for tariff relief in the near term.

The rupee also weakened after Fitch affirmed India’s sovereign rating at ‘BBB-’, highlighting elevated fiscal risks, in contrast to S&P’s recent upgrade. The rating stance dampened investor confidence and weighed on flows into domestic assets.

Earlier in the session, the rupee drew some support from dovish signals by Federal Reserve Chair Jerome Powell, who acknowledged rising risks to the US labor market. However, his caution on inflation kept the dollar broadly supported. Traders now expect volatile trading ahead of the September Fed policy meeting. 

Unit	Today	Previous
Dollar/Rupee	87.58	87.53
Dollar Index	97.96	98.72
1-year Dollar/rupee premium (%)	2.19%	2.16%

OUTLOOK
Indian financial markets will likely tread cautiously in the coming sessions as equities, bonds, and the rupee navigate competing domestic and global forces.

Equity markets will remain supported by strength in information technology stocks, with brokerages turning constructive on earnings visibility. Gains in midcaps and select sectoral plays, including paper producers benefiting from import curbs, will continue to underpin sentiment. However, capital market-linked counters may see further pressure, and banking stocks could remain subdued given near-term index exclusions. Overall, equities will likely stay firm but prone to bouts of profit-taking.

The government bond market will continue to grapple with concerns over fiscal slippage and higher borrowing requirements, triggered by the proposed GST rate overhaul. The 10-year benchmark yield, already at a five-month high, will likely face upward pressure as traders adjust positions ahead of fresh supply. While global cues such as a potential Federal Reserve rate cut in September could provide some temporary relief, domestic fiscal concerns will dominate sentiment and restrict any sustained rally.

The Indian rupee will remain under strain, pressured by persistent importer dollar demand and the impending imposition of steeper US tariffs on Indian goods. With Washington set to levy up to 50% duties, trade-related risks will continue to weigh on the local unit. While expectations of Fed easing will soften the dollar globally, the rupee will struggle to stage a meaningful recovery amid elevated domestic risks.

Taken together, Indian equities will show relative resilience, bonds will face persistent headwinds, and the rupee will likely stay vulnerable in the near term.

Key Events & Data Due Monday:

Economic Data

• Japan Core CPI 
• US July Core Durable Goods Orders Data

Corporate Actions

• Ujaas Energy to consider bonus share issue
• Sri Lotus Developers and Realty to consider financial results
• DRC Systems India to consider fund rasing

Policy Events

• RBA Meeting Minutes 
• FOMC Member Williams Speaks  
• BoE MPC Member Mann Speaks