Nifty Futures Signal Stocks May Rally From Worst Loss in 2 Weeks

Indian stock-index futures gained, signaling benchmark indexes may rally from the biggest decline in two weeks.

SGX CNX Nifty Index futures for July delivery rose 0.2 percent to 5,783 at 10:40 a.m. in Singapore. The underlying CNX Nifty (NIFTY) Index fell 1.5 percent to 5,770.90 yesterday, the largest loss since June 20. The S&P BSE Sensex lost 1.5 percent. The Bank of New York Mellon India ADR Index of U.S.-traded shares dropped 0.9 percent.

Asian stocks outside Japan rose after better-than-estimated U.S. jobs data added to signs of recovery in the world’s largest economy, boosting the earnings outlook for exporters. The U.S. accounted for 11 percent of India’s exports in the year ended March 2012, government data show. Indian stocks dropped yesterday amid concern the central bank will have less room to cut interest rates as oil prices climb to near a 14-month high and the rupee weakens.

“The global news flow is positive and that’s the reason why futures are up,” Arun Kejriwal, director at Kejriwal Research & Investment Services, said by phone from Mumbai today. “But we don’t see it sustaining today as the rupee is likely to be under pressure because of the government’s move on food security. The concern is that our deficits will widen and it shows the government has already started preparing for next year’s election.”

Weakening Currency

India’s cabinet enacted proposals yesterday to expand the provision of cheap food to the poor, approving a rarely used executive ordinance to pursue a central plank of the government’s re-election strategy with a national ballot due before the end of May.

The government may spend about 1.25 trillion rupees ($20.7 billion) on food payments in the financial year ending March 31, 2014. Subsidies have helped widen the nation’s fiscal deficit amid the weakest economic growth in a decade.

India’s current-account imbalance, the broadest gauge of trade, is the biggest risk to an economy that grew a decade-low 5 percent in the year ended March, according to the central bank. The International Monetary Fund estimates the gap at 4.9 percent of gross domestic product this year, compared with 3.3 percent in Indonesia and a surplus of 2.6 percent in China.

The rupee weakened to within 0.9 percent of its all-time low yesterday on concern overseas investors will pull more money from local assets, leaving the currency vulnerable to a record current-account deficit.

Foreign Flows

Foreign investors withdrew the most money from Indian (SENSEX) stocks in June in about two years on concern the nation’s public finances will worsen when the U.S. Federal Reserve starts tapering monetary stimulus.

Overseas funds sold a net $1.1 million of Indian stocks on July 2, according to data from the market regulator, paring this year’s net inflow to $13.5 billion, a record for the period.

The Sensex has retreated 5.5 percent since climbing to a two-year high on May 17 as the prospect of reduced monetary easing by the U.S. prompted global investors to pull money from emerging markets. The gauge is valued at 12.8 times projected 12-month earnings, compared with the MSCI Emerging Markets Index’s 9.5 times.

Shares of Larsen & Toubro Ltd. (LT), India’s biggest engineering company, may be active after Reuters reported the company got a contract for a $352 million road project in Oman.

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

To contact the editor responsible for this story: Michael Patterson at mpatterson10@bloomberg.net

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