India’s Nifty Stock Futures Drop on Goldman Forecast Cut

Most Indian stocks climbed for the fourth day as investors awaited monetary policy decisions by the U.S. Federal Reserve and European Central Bank.

The BSE India Sensitive Index (SENSEX), or Sensex, rose 0.1 percent to 17,257.38 at the close, as 16 stocks climbed and 14 fell on the gauge. Drugmaker Cipla Ltd. (CIPLA) advanced the most in more than eight months after its profit exceeded estimates. State Bank of India Ltd. and Housing Development Finance Corp. (HDFC) increased more than 1 percent each.

The U.S. Federal Reserve will probably forgo announcing a third round of large-scale asset purchases and is more likely to wait until September to unveil plans to buy debt, economists said before the two-day monetary policy meeting that concludes today. The European Central Bank will announce a decision tomorrow after ECB President Mario Draghi vowed last week to do whatever it takes to preserve the euro.

“The ECB having raised the expectations got to come up with something substantive this week and it would be enough to encourage the risk-on trade for a while,” Geoff Lewis, head of investment services at JPMorgan Asset Management in Hong Kong, told Bloomberg UTV today. “The ECB will do its best to calm the financial markets.”

The Sensex has increased 12 percent this year, helped by record purchases by overseas investors. India’s economy will grow 5.7 percent in the year to March 31, less than a previous forecast of 6.6 percent, Goldman Sachs Group Inc. (GS) wrote in a report today, citing the outlook for weaker farm output from deficient monsoon rains.

‘Sticky Funds’

Foreign funds bought a net $2 billion of stocks in July, taking their investment this year in Indian equities to $11.3 billion, data from the regulator show. That’s a record for the period and the most in Asia in 2012.

“Foreign institutional investors are sticking with India as the long-term growth prospects are still very attractive, especially when compared with developed markets,” Lewis said. “A lot of bad news is being discounted. We will see a gradual build up of flows back into India and this will actually take some pressure off the rupee, and the current account deficit will prove finance-able.”

India’s rupee strengthened, snapping a two-day decline, on speculation global policy makers are preparing to take measures aimed at arresting a global slowdown. Foreign investors raised holdings of rupee-denominated debt by $610 million last month through July 30, exchange data show.

‘Sentiment Hit’

Reserve Bank of India Governor Duvvuri Subbarao left the benchmark repurchase rate unchanged at 8 percent for a second meeting yesterday. The RBI raised its inflation forecast to 7 percent as a drop in the rupee, infrastructure bottlenecks and higher food costs stoke price pressures, a trend that may be worsened by the impact of the monsoon.

“The biggest surprise has been the weak monsoon,” Goldman analysts led by Tushar Poddar wrote in the report. “This will likely exacerbate the hit to business sentiment, which has already worsened more and quicker than we expected largely due to the lack of significant policy reforms.”

Singh is grappling with a budget deficit and discord in the ruling coalition that has set back efforts to turn around a slowdown in investment. Two power-grid collapses in 36 hours that affected a record 600 million have dented his credibility, already strained as the economy grows at the slowest pace in a decade and his government struggles through 18 months of policy reversals and corruption allegations.

Investor Confidence

Singh vowed last month to revive investor confidence after Standard & Poor’s and Fitch Ratings warned they may strip the country of its investment-grade credit rating.

Palaniappan Chidambaram was named finance minister for the third time yesterday, taking over from Singh, who assumed the post temporarily after Pranab Mukherjee resigned to run for the country’s presidency.

India VIX, which measures the cost of protection against losses in the S&P CNX Nifty Index, surged 2.8 percent to 16.45. The Nifty added 0.2 percent to 5,240.50. The BSE-200 Index rose 0.4 percent. Combined volume on India’s top two bourses was 809 million shares yesterday, 10 percent less than the 12-month daily average of 899 million.

Cipla soared 5 percent to 354 rupees, the most since Nov. 15. First-quarter profit rose 58 percent to 4.01 billion rupees ($72 million). The median of 23 analysts’ estimates compiled by Bloomberg was a 3.1 billion-rupee profit. Sun Pharmaceutical Industries Ltd. (SUNP), the most valuable drugmaker, added 1 percent to 659.85 rupees. Dr Reddy’s Laboratories Ltd. (DRRD) climbed 1.3 percent to 1,635.95 rupees.

State Bank added 1.4 percent to 2,033.4 rupees. Housing Development gained 1.3 percent to 699.85 rupees. Bharat Heavy Electricals Ltd. (BHEL), the biggest power-equipment maker, surged 2.2 percent to 220.4 rupees.

Tata Consultancy Services, the largest software exporter, fell 1.5 percent to 1,224.65 rupees. Infosys Ltd. (INFO) declined 0.4 percent to 2,218.55 rupees.

Overseas investors bought a net 9.28 billion rupees ($166 million) of stocks yesterday, according to the regulator.

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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