India Stock Futures Swing Between Gains, Losses

India’s benchmark stock index rose for the first week in five amid expectation the government will take steps to curb the budget deficit and as the rupee gained from a record low.

State Bank of India Ltd., the nation’s biggest lender, rose for the third day. Tata Steel Ltd., the biggest producer, paced gains among its peers. The BSE India Sensitive Index fell less than 0.1 percent to 16,217.82 at close. The gauge climbed 0.4 percent this week, ending four weeks of losses.

The Sensex jumped 1.7 percent yesterday, the most since March 30, on optimism the government will take more measures to fill a gap in its finances after allowing the first increase in gasoline costs in seven months. Policy gridlock, widening trade and fiscal deficits, elevated inflation and a weak rupee have led the stock gauge to drop 12 percent from its Feb. 21 high. Goldman Sachs Group Inc. today cut its growth forecast for the country, citing weaker investment outlook.

“The government must follow the gasoline price increase with more reforms and take tough measures,” Vaibhav Sanghvi, director of investment advisory at Ambit Capital Ltd., said by telephone from Mumbai. “That will boost investor sentiment, increase foreign flows and help stabilize the currency.”

Foreign funds have withdrawn a net $168 million from local shares this month, after becoming net sellers in April for the first time in 2012, data from the regulator show. The outflows have contributed to the 8.1 percent decline in the rupee this quarter. The currency’s slump threatens to stoke inflation and limits the scope for interest-rate cuts, a risk underscored by Goldman today as it cut its forecast for India’s gross domestic product to 6.6 percent from 7.2 percent.

‘India De-Rated’

Morgan Stanley on May 21 reduced its 2013 GDP forecast for the nation to 6.8 percent from 7.5 percent, and Citigroup Inc. said in a note yesterday “there is now near-consensus that the India story has de-rated, with growth at best likely in the 6.5 percent to 7 percent range” this year.

India reports first-quarter GDP figures next week, forecast to show a year-on-year increase of 6 percent, according to the median estimate in a Bloomberg News survey.

The rupee strengthened 0.5 percent to 55.3750 a dollar at close, rebounding from yesterday’s record low of 56.3875, after the Reserve Bank of India Governor Duvvuri Subbarao said policy makers “will do whatever is necessary” within the scope of its policy to stabilize the exchange rate.

Every one-rupee drop in the domestic currency against the dollar boosts annual revenue losses for the three state-owned refiners by 80 billion rupees ($1.4 billion), according to the oil ministry. While the government partly compensates them for selling diesel and cooking gas at below cost, higher subsidies worsen the budget deficit. Finance Minister Pranab Mukherjee has pledged to restrict the subsidy program that spans diesel to fertilizers to less than 2 percent of GDP this fiscal year.

VIX Index

India VIX, which measures the cost of protection against losses in the S&P CNX Nifty Index, fell 1.4 percent to 25.14. The Nifty decreased less than 0.1 percent to 4,920.40. The BSE 200 Index rose 0.1 percent. A total 727 million shares traded on the BSE and NSE yesterday, 20 percent less than the 12-month daily average.

State Bank added 2.1 percent to 2,006.9 rupees. DLF Ltd., the biggest developer, rose 2 percent to 188.4 rupees. Larsen & Toubro Ltd., the largest engineering company, gained 1.7 percent to 1,188 rupees.

Tata Steel advanced 2.5 percent to 408.6 rupees. Sterlite Industries (India) Ltd., the biggest copper and zinc producer, increased 1.5 percent to 96.85 rupees.

Foreign funds sold a net $57.2 million of Indian stocks on May 23, paring their investment in equities this year to $8.6 billion, data from the regulator show. Still, their investments of a net $8.6 billion into local equities so far this year is a record for the period, the data show.

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