Indian (SENSEX) stock-index futures dropped after the Reserve Bank of India raised two interest rates yesterday, stepping up efforts to aid the rupee after its plunge to a record low.
SGX CNX Nifty Index futures for July delivery slumped 1.5 percent to 5,937 at 10:17 a.m. in Singapore. The underlying CNX Nifty (NIFTY) Index gained 0.4 percent to 6,030.80 yesterday. The S&P BSE Sensex rose 0.4 percent. The Bank of New York Mellon India ADR Index of U.S.-traded shares added less than 0.1 percent. Rupee forwards jumped the most in 10 months.
The central bank increased the marginal standing facility and the bank rate to 10.25 percent from 8.25 percent, and said it plans to sell $ 2 billion of government bonds on July 18, moves that escalate a tightening in liquidity across most of the biggest emerging markets. The rupee has weakened 8.2 percent against the dollar this year, hurt by the slowest economic growth in a decade and a record current-account deficit.
“Markets will open lower, with state-run lenders and companies with high debt facing pressure,” A.K. Prabhakar, senior vice president of equity research at Mumbai-based Anand Rathi Financial Services Ltd., wrote in an e-mail today. “Companies holding cash could continue to rally,” such as Reliance Industries Ltd., Infosys Ltd., Tata Consultancy Services Ltd. and ITC Ltd., he said. “These are short-term measures and will stabilize things,” he added.
The rupee’s plunge threatens to spur gains in consumer prices and prompted Reserve Bank of India Governor Duvvuri Subbarao to leave interest rates unchanged in June for the first time in four reviews, citing inflation risks. The monetary authority meets for its next policy review on July 30.
A weakening currency also stokes inflation by raising the cost of India’s imported oil and threatens to increase costs for companies facing at least $ 20 billion in foreign debt repayments in the coming year. Asia’s third-largest economy grew 5 percent in the year ended March 31.
India’s wholesale-price index rose 4.86 percent in June from a year ago, compared with 4.7 percent in May, official data showed July 15. The median estimate in a Bloomberg survey of 30 analysts was 4.94 percent. Consumer price-inflation climbed to 9.87 percent in June from 9.31 percent, while factory output unexpectedly contracted in May, data showed July 12.
“It’s quite surprising that the central bank has used these measures to support the rupee at a time when the economy is in such a bad state,” said Prasanna Ananthasubramanian, an economist at ICICI Securities Primary Dealership Ltd. in Mumbai. “These moves will not only push up interest rates but also lead to tightened liquidity conditions.”
One-month non-deliverable forwards on the rupee strengthened 1.3 percent to 59.51 per dollar, the strongest gain since September, data compiled by Bloomberg show. The contract touched a two-week high of 59.40 earlier.
Global investors sold $ 220 million of local shares on July 11, paring this year’s inflows to $ 13.3 billion, data compiled by Bloomberg show. International funds sold $ 1.8 billion in June, the most since August 2011, the data show.
The Sensex has gained 3.1 percent this year and trades at 13.4 times projected 12-month earnings, the most expensive since May 30. That compares with the MSCI Emerging Markets Index’s 10 times. The India measure’s 30-day volatility, a gauge of price swings, rose to 19.9 yesterday, the highest level since April 2012.
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