Bloomberg News

India Stock Futures Swing Between Gains, Losses on Debt, Rupee

October 04, 2011

Oct. 5 (Bloomberg) -- Indian stock-index futures swung between gains and losses amid concerns Europe’s deepening debt crisis and a weaker rupee will hurt company earnings.

SGX S&P CNX Nifty Index futures for October delivery lost 4.5 points, or 0.1 percent, to 4,774.5 at 10:19 a.m. in Singapore, after gaining as much as 0.4 percent earlier. The underlying S&P CNX Nifty Index lost 1.6 percent to 4,772.15 yesterday, the lowest level in five weeks. The BSE India Sensitive Index, or Sensex, declined 1.8 percent to 15,864.86.

Italy’s credit rating was cut by Moody’s Investors Service for the first time in almost 20 years as Europe’s finance ministers discuss ways to coordinate recapitalizing banks. The weakest rupee in two years is boosting the cost of debt for Indian companies as record rate increases and accelerating inflation slow earnings growth. Federal Reserve Chairman Ben S. Bernanke said yesterday the central bank is “prepared to take further action as appropriate to promote a stronger economic recovery.”

“There is no respite for equities given the heightened fears over the worsening euro-zone debt crisis,” Amar Ambani, head of research at IIFL - India Private Clients, said in a note yesterday. “European leaders don’t seem to have a clue on how to address the region’s fiscal mess. The sentiment will remain fragile unless and until Greece gets fresh rescue funds.”

Foreign-Currency Debt

The Indian rupee’s drop to its weakest level since 2009 is increasing the cost of repaying overseas debt for the nation’s companies as yields on dollar bonds surged to a two-year high.

State Bank of India and Export-Import Bank of India are among borrowers with about $3 billion of foreign-currency notes due by Dec. 31, twice as much as the previous quarter, data compiled by Bloomberg show. State Bank of India, the nation’s largest, fell to a two-year low after Moody’s Investors Service cut the rating on its financial strength, citing deteriorating asset quality.

The rupee lost 6 percent in September, its sharpest monthly drop in three years, as Asian currencies slumped on concern the global economy is headed for a recession, dimming the outlook for exports and prompting investors to favor safer bets than emerging-market assets.

Indian software exporters get about three-quarters of their revenue from overseas.

“With the dollar-bond market shut to Indian borrowers for two months already, issuers will not be able to raise new funds to repay obligations,” Scott Bennett, Singapore-based head of Asian credit at Aberdeen Asset Management Plc, which oversees $298 billion globally, said in an interview.

Deficit Target

India’s Finance Minister Pranab Mukherjee said yesterday that it may be hard to meet the budget-deficit target in the current fiscal year as the government plans to sell more debt. Mukherjee aims to narrow the deficit to a four-year low of 4.6 percent of GDP in the year ending March 31.

India’s manufacturing expanded in September at the slowest pace in 2 1/2 years, a report showed on Oct. 3, signaling higher borrowing costs are cooling demand. The Purchasing Managers’ Index was at 50.4 last month from 52.6 in August, HSBC Holdings and Markit Economics said in the report. That’s the weakest reading since March 2009. A number above 50 indicates expansion.

India’s economy may expand 7.9 percent in the year ending March 31, lower than the 8.2 percent growth estimated in April, the Asian Development Bank said in a report on Sept. 14.

Central bank Governor Duvvuri Subbarao has increased borrowing costs by a total of 350 basis points starting mid- March 2010, the fastest round of increases since the central bank was set up in 1935, to contain prices that are rising the fastest among the so-called BRICS nations of Brazil, Russia, India, China and South Africa.

Earnings Lag

The Reserve Bank of India last raised its repurchase rate on Sept. 16 to 8.25 percent from 8 percent, after India’s inflation climbed to a 13-month high of 9.78 percent in August. The RBI meets Oct. 25 for its next policy review.

The Sensex has retreated 23 percent this year amid concern the European crisis and slowing economic growth in the U.S. may compound the effects of the rate increases on corporate profits. The gauge slid 13 percent in the quarter ended September, the most since the three-months ended December 2008.

Companies in the Sensex trade at 13.4 times estimated profits, down from 21.5 times in March 2010. The MSCI Emerging Markets Index is valued at 9 times.

Earnings for 47 percent of companies in the Sensex lagged behind analysts’ estimates in the quarter ended June, compared with about 33 percent in the previous three months.

‘Better Returns’

Still, “risk aversion cannot last forever,” Ambareesh Baliga, chief operating officer at Way2Wealth Brokers Pvt. in Mumbai, said by phone yesterday. “When risk aversion subsides, money will look for better returns, which the emerging markets should offer. India is growing at a relatively better pace than the rest of the world.”

Infosys Ltd., the second-largest Indian software services provider, will report results on Oct. 12, the first company in the Nifty to post earnings for the quarter ended Sept. 30.

Automakers Tata Motors Ltd. and Mahindra & Mahindra Ltd. may be active after riots and a curfew imposed by the police in the northern Indian state of Uttarakhand hurt production at their factories in the area.

--Editors: Matthew Oakley, Darren Boey

To contact the reporter on this story: Shikhar Balwani in Mumbai at;

To contact the editor responsible for this story: Darren Boey at

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