India Stock Futures Rise as Europe Optimism Offsets Rate Concern

India’s stock-index futures rose, signaling gains for benchmark indexes, as investors weighed easing concern over Europe’s debt crisis against the prospect of accelerating inflation and higher interest rates.

SGX S&P CNX Nifty Index futures for September delivery advanced 0.4 percent to 5,047.5 at 10:31 a.m. in Singapore. The underlying S&P CNX Nifty Index climbed 1.4 percent to 5,012.55 yesterday. The BSE India Sensitive Index, or Sensex, rose 1.5 percent to 16,709.60, the steepest gain in two weeks.

French President Nicolas Sarkozy and German Chancellor Angela Merkel said yesterday they’re convinced debt-ridden Greece will remain in the euro area. Any optimism over European debt may be stifled by interest-rate concerns amid economist predictions the central bank will raise borrowing costs tomorrow. The nation’s wholesale price index released yesterday showed inflation accelerated to a 13-month high in August. A weekly gauge of food inflation is due today.

“High inflation will continue for the next three to four weeks,” Arun Kejriwal, director of Kejriwal Research & Investment Services Pvt., said in a phone interview. “The inflation figures are going out of hand. A rate hike of 25 basis points could happen on Friday. Food inflation is not coming down.”

The Sensex has tumbled 19 percent this year amid concerns a slowdown in the global economy will erode company earnings already threatened by interest-rate increases. The gauge lost 8.4 percent in August, the biggest monthly decline since January, on signs Europe’s sovereign debt crisis is spreading and after Standard & Poor’s cut its rating on U.S. credit.

Greece’s Future

Greek Prime Minister George Papandreou yesterday committed to meet deficit-reduction targets demanded as a condition for an international bailout, according to statements distributed by Athens and Paris. Sarkozy and Merkel “are convinced that the future of Greece is in the euro zone,” the French statement said, easing concern the monetary union may collapse.

“The European markets will have to eventually accept that Greece will not be able to pay back,” Vetri Subramaniam, the Mumbai-based head of equities at Religare Asset Management Co., said in a phone interview. “The impact will be more pronounced in European financial markets than ours.”

The Reserve Bank of India is expected to raise its repurchase rate by 25 basis points to 8.25 percent at a policy meeting tomorrow, according to 12 of 13 economists in a Bloomberg News survey. The bank has boosted rates 11 times since the start of 2010 to curb the rising cost of living.

Rising Inflation

India’s benchmark wholesale-price index inflation quickened to 9.78 percent in August, from 9.22 percent the previous month, the commerce ministry said yesterday. That exceeded the median of 25 estimates in a Bloomberg News survey for a 9.64 percent increase.

“Inflation numbers will remain a concern,” Religare’s Subramaniam said. “Our sense is that there will be some growth moderation, because of which there could be a change in monetary policy to support growth.”

India’s $1.7 trillion economy, where the World Bank says more than 75 percent of the 1.2-billion population lives on less than $2 a day, expanded 7.7 percent in the three months ended June from a year earlier, the slowest pace of expansion in six quarters. Slowing growth may prompt the Reserve Bank to pause raising rates, the Press Trust cited Finance Minister Pranab Mukherjee as saying on Sept. 5.

Companies in the Sensex trade for 14 times estimated profits, within 10 percent of the lowest level since April 2009, and down from 21.5 times in March 2010.

“With valuations below average, one should take a constructive view toward equities,” Religare’s Subramaniam said. “There is an opportunity for stock picking in all sectors.”

-- With assistance from Tanya Ashreena. Editors: Darren Boey, Allen Wan

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