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Indian Nifty Futures Fall as Rupee Drop Stokes Rate-Cut Concerns

Indian (SENSEX) stock-index futures dropped amid concern the rupee’s slump to a record low will restrict the central bank’s scope to cut interest rates at a policy review next week.

SGX CNX Nifty Index futures for June delivery fell 0.4 percent to 5,882 at 10:01 a.m. in Singapore. The underlying CNX Nifty (NIFTY) Index dropped less than 0.1 percent to 5,878 yesterday. The S&P BSE Sensex added less than 0.1 percent. The Bank of New York Mellon India ADR Index of U.S.-traded shares declined 1.5 percent to its lowest level since April 17.

The rupee reached its weakest level yesterday, weighed down by an unprecedented current-account deficit, the slowest Indian economic expansion in a decade and speculation the dollar will gain if the U.S. scales back monetary stimulus. The Reserve Bank of India meets on July 17.

“The rupee is the most important factor now,” Kishor Ostwal, managing director of CNI Research (India) Ltd., said by phone yesterday. “The markets will dance to the rupee’s tune in the short term.”

The central bank, which has cut the repurchase rate three times by a total of 75 basis points this year, will keep it at 7.25 percent next week, according to 10 of 18 analysts in a Bloomberg survey. The rest forecast a 25 basis-point reduction.

Inflation Risk

Central bank Governor Duvvuri Subbarao said on May 30 that the depreciation of the rupee may stoke inflation and increase the cost of servicing foreign-currency debt. Data to be released tomorrow may show consumer prices increased 9 percent in May, according to a Bloomberg survey of 22 economists. The rate hasn’t slowed to less than 9 percent since February 2012.

Wholesale prices accelerated 4.86 percent in May, data on June 14 may show, after a 4.89 percent increase in April, the least since November 2009.

The Sensex climbed to a two-year high on May 17 as monetary stimulus from central banks from the U.S. to Europe and Japan boosted inflows into emerging markets, including India. The gauge has slumped 4.2 percent since then.

Still, overseas investors bought $112 million of local stocks on June 7, according to data from the market regulator. That took this year’s net investment to $15.3 billion, a record for the period, data compiled by Bloomberg show.

The Sensex is valued at 13.4 times projected 12-month profits, compared with the MSCI Emerging Markets Index’s 10 times.

Shares of HDFC Bank Ltd. (HDFCB), the country’s biggest by market value, Axis Bank Ltd. (AXSB) and ICICI Bank Ltd. (ICICIBC) may be active after the central bank ordered the lenders to pay penalties for flouting rules, including those on money laundering.

Axis will have to pay a fine of 50 million rupees ($860,659), while HDFC was handed a penalty of 45 million rupees, the central bank said in a statement on its website yesterday. ICICI must pay 10 million rupees.

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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