India Stocks Fluctuate on Concern Rates May Increase

Indian stocks swung between gains and losses as concern the nation’s central bank may continue to raise interest rates countered optimism over Greece’s progress in meeting condition to receive more aid.

Tata Consultancy Services Ltd., India’s biggest software services maker, which got about 78 percent of its revenue from the U.S. and Europe in the year ended March 31, paced gains among peers Infosys Ltd. and Wipro Ltd. Cairn India Ltd. gained after the board of Oil & Natural Gas Corp. approved Vedanta Resources Plc’s plan to buy a majority stake in Cairn Energy Plc’s Indian unit.

The BSE India Sensitive Index, or Sensex, declined 0.7 percent to 16,401 at 11:09 a.m. Mumbai time, after swinging between gains and losses a dozen times. The gauge has lost 13 percent this quarter ending Sept. 30, the most since the three months ended December 2008, amid concern the Reserve Bank of India’s record interest-rate increases will worsen the impact of Europe’s debt crisis and a faltering U.S. recovery on local company earnings.

Greek Prime Minister George Papandreou won a parliamentary vote on a new property tax, boosting his chances of pushing through austerity cuts aimed at securing further financial aid. German Chancellor Angela Merkel said Greece will meet the terms of international inspectors ruling on its bailout aid, voicing her government’s support for Greece’s economic success.

“Some good news is expected about Greek and European debt woes as euro-zone countries continue to vote on expanding the European Financial Stability Fund,” Amit Chheda, head of equity at Inventure Growth & Securities Ltd., said in a note. “However, questions on economic growth still persist.”

Export Earnings

Infosys climbed 2.9 percent to 2,514 rupees, the biggest gainer on the Sensex, while Tata Consultancy Services jumped 1.8 percent to 1,059.7 rupees and Wipro rallied 2.3 percent to 356.05 rupees. Software exporters get about three-quarters of their revenue from overseas, mostly the U.S. and Europe.

India’s rupee climbed past 49 per dollar to the highest level in a week, after weakening 0.1 percent earlier to 49.13. The currency lost 4.6 percent last week, the most in 18 years, as foreign funds favored safer bets than emerging-market assets amid concern the global economy is set for a recession.

Overseas investors sold a net 10.1 billion rupees ($202.9 million) of local stocks on Sept. 26, turning into net sellers of 6.32 billion rupees in shares this year, data compiled by the market regulator show. They withdrew a net $2.4 billion in August, the most since October 2008.

‘Interrupted’ Growth

India’s $1.2 trillion stock market, Asia’s fourth-biggest, is influenced by foreign fund flows. Inflows from abroad surged to a record $29.4 billion in 2010, making the Sensex the best performer among the world’s top 10 markets. The largest-ever outflow in 2008 led the biggest annual slump of 52 percent.

India’s economy will expand 7.8 percent this year, the International Monetary Fund said Sept. 20, slower than the 8.2 percent estimated in June. Growth in emerging-market economies will be “interrupted” if problems caused by the risks of a U.S. recession and Europe’s crisis aren’t resolved, Reserve Bank of India Governor Duvvuri Subbarao said Sept. 26.

Inflation remains above the level the central bank deems acceptable, he said, underscoring that pressure remains for further monetary tightening. The central bank raised borrowing costs for a 12th time since March 2010 on Sept. 16. Its next monetary policy meeting is scheduled for Oct. 25.

“India and China, where inflation is high, will deal with it by maintaining tight monetary policy,” said Adrian Mowat, JPMorgan Chase & Co.’s emerging-market strategist. The nations “will prepare for a slowdown in growth rather than not fight inflation at this time,” he said yesterday in an interview with Bloomberg-UTV.

‘Earnings Downside’

The Sensex has dropped 19 percent this year on concern the record series of interest-rate increases may compound the effects of Europe’s crisis and slowing U.S. growth on company profits.

Earnings for 47 percent of the companies on the measure missed analyst estimates in the quarter ended June, compared with 33 percent that lagged behind forecasts in the previous quarter, according to Bloomberg data.

“We remain cautious on the markets with more downside to corporate earnings estimates,” according to a report by CLSA Asia Pacific Markets dated yesterday. Still, “CLSA’s global strategy team retains India as one of its favourite markets given its lower export dependence and RBI’s potential capacity to fight a potential deflationary scare.”

(Corrects Tata Consultancy’s revenue in second paragraph.)
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