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India Stock Futures Swing Between Gains, Losses on Debt

Feb. 21 (Bloomberg) -- Indian stocks rose to their highest level in almost seven months after European finance ministers reached an agreement on a second bailout package for Greece to shield the region from a precedent-setting default.

Bharat Heavy Electricals Ltd., the biggest producer of power equipments, rose to a three-month high as the government is likely to approve a proposal to levy a 19 percent import tax to help local companies compete for orders with Chinese rivals, Power Secretary P. Uma Shankar said. Tata Steel Ltd., the largest producer, and Reliance Industries Ltd., the nation’s most valuable company, both surged at least 2.5 percent each.

The BSE India Sensitive Index, or Sensex, rose 0.8 percent to 18,428.61 at the 3:30 p.m. close in Mumbai, its highest level since July 27. The measure has rebounded 21 percent from its low in December, crossing the 20 percent mark that signals a bull market, as slowing consumer prices, a strengthening rupee and the first reduction in banks’ reserve ratios since 2009 spurred foreigners to buy stocks.

“The near-term payment crisis with Greece, Italy or Spain has been averted, and for some time we will see liquidity being benign globally and the rally continuing in most asset classes globally,” Nirmal Jain, chairman of brokerage India Infoline Ltd., told Bloomberg UTV today.

Euro-region finance ministers awarded 130 billion euros ($173 billion) in aid, engineered the central bank profits transfer and coaxed investor representatives into providing more debt relief in an exchange offer meant to tide Greece past a bond redemption next month. The EU is India’s biggest trading partner, according to the nation’s trade ministry.

The assistance brings to at least 386 billion euros the sums spent or committed to save Greece, Ireland and Portugal from bankruptcy, and to shield Europe from a financial cascade.

Fund Flows

Overseas investors bought a net $121 million of Indian stocks on Feb. 17, taking their investment this year to $5 billion, data from the regulator show. They pulled out $512 million in 2011, contributing to the 25 percent slump in the Sensex, its second-worst annual loss. Developing-nation stock funds lured $19 billion this year, compared with outflows of $34 billion in 2011, Citigroup Inc. said in a Feb. 17 note.

“The big difference between this year and the last is liquidity and that’s been driving the markets,” said Arun Kejriwal, a director at Kejriwal Research & Investment Services in Mumbai. “It’s been a party out there for investors this year and the Europe news has added to it.”

The S&P CNX Nifty Index on the National Stock Exchange of India added 0.8 percent to 5,607.15. The BSE 200 Index advanced 0.7 percent to 2,278.33, its highest level since July. The market was closed yesterday for a public holiday.

Import Duty

Bharat Heavy jumped 4.8 percent to 318 rupees on expectations the government will raise duty on imports to help it compete with overseas rivals. India’s cabinet may approve a proposal to increase duty on imports of generation equipment to 19 percent to help local manufacturers Bharat Heavy and Larsen & Toubro Ltd., a government official said. Chinese suppliers have won orders from Reliance Power Ltd. and Adani Power Ltd. as India seeks to add 100,000 megawatts in capacity by 2017.

“India has been the best-performing Asian market year-to-date and we believe the strong performance would continue as the liquidity driven rally is now getting the policy support and corporate earnings stability,” CLSA Asia Pacific Markets analysts Mahesh Nandurkar and Bhavesh Shah wrote in an report today. CLSA raised its Sensex target for the year ending in March 2013 to 20,800.

Tata Steel added 2.8 percent to 491.5 rupees and Reliance increased 3.1 percent to 843.55 rupees. State Bank of India, the biggest lender, gained 1.5 percent to 2,452.45 rupees, extending this year’s gains to 51 percent, the second-best performer on the 30-member Sensex.

Kingfisher Slumps

Kingfisher Airlines Ltd. added 0.4 percent. The airline owned by billionaire Vijay Mallya erased an intraday plunge of as much as 20 percent after Bloomberg UTV said, citing unnamed sources, lenders may give it about 10 billion rupees as working capital loan. Tax authorities froze Kingfisher’s bank accounts forcing it to cancel as many as 32 daily flights since Feb. 17, the airline said Feb. 18.

“The shares may have gained, but Kingfisher as a brand is losing its value,” Jagannadham Thunuguntla, chief strategist at New Delhi-based SMC Global Securities Ltd., said by phone. “They have to get their act together or they might run out of time fast.”

Jet Airways (India) Ltd., the nation’s biggest airline, and discount carrier SpiceJet Ltd. both surged on speculation Kingfisher may collapse following more than 10 quarters of losses caused by price wars and higher fuel costs. Kingfisher, which has cut about 15 percent of services, expects to resume full operations this week, it said on Feb. 18.

Jet rallied 7.3 percent to 352.8 rupees, extending this year’s advance to 108 percent. SpiceJet jumped 10 percent to 27 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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