India’s benchmark stock index was little changed as investors weighed measures introduced by the central bank to arrest the rupee’s slump against the outcome of a European Union summit on the region’s debt crisis this week.
Reliance Industries Ltd., operator of the world’s largest refining complex, rose for a second day. ITC Ltd., the largest tobacco company, fell for a third day. The BSE India Sensitive Index added 0.1 percent to 16,906.58 at the close. Two stocks rose for each that declined on the 30-stock index.
The Reserve Bank of India yesterday raised the amount of government debt foreign funds can hold by $5 billion to halt the drop in Asia’s worst-performing major currency this year. German Chancellor Angela Merkel hardened her resistance to euro-area debt sharing, increasing concerns leaders in the EU, India’s top trading partner, will fail to agree on measures to curb the debt crisis at a two-day summit starting June 28.
“Markets will remain range bound as long as we are in this uncertain phase,” said Sreesankar Radhakrishnan, senior vice president at Tata Securities Ltd. in Mumbai. “A slowdown in decision-making in the political space is not encouraging and the dithering in Europe over Greece is also not positive.”
Prime Minister Manmohan Singh is grappling with an economy hobbled by slowing growth, a record trade deficit, a budget gap that has exceeded targets, corruption scandals and in-fighting that has stymied his efforts to attract foreign investment. The rupee touched a record low of 57.3275 a dollar on June 22, and the Sensex is headed for its first quarterly decline since the three-month period ended in December.
“Rupee depreciation should impart lot of competitiveness to manufacturing and exports but can India do the right things for growth to improve and exports to increase?” said Sanjeev Prasad, senior executive director and co-head of Mumbai-based Kotak Institutional Equities, in an interview to Bloomberg UTV today. “So far we are not seeing improvement in governance because we have very dysfunctional politics at this point.”
Finance Minister Pranab Mukherjee, who quit from his post today to contest next month’s presidential polls, increased the overseas investment cap on government debt to $20 billion and broadened the base of buyers to include sovereign wealth funds, central banks and pension funds. Offshore funds cut holdings of local bonds by $1.2 billion from a record $31.5 billion reached on Feb. 29 and pulled out $273 million from equities in May, a second month of net sales, data from the regulator show.
“Foreigners still believe in the long-term demographics of India but the frustrating part is the governance issue and the discussion boils down to: when do we see policies getting implemented,” Kotak’s Prasad said. “Some long-term investors who have been India bulls for the last 15-20 years are raising this question. That’s a serious message to the government.”
The rupee fell to 57.035 per dollar at close, from 57.015 yesterday. The currency has lost 7 percent in 2012, the worst performance among the 10 most-traded Asian currencies.
The decline has intensified price pressures because India buys 80 percent of its crude from abroad and undermined efforts by the government to pare the widest fiscal deficit among the largest emerging economies.
The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. rose 0.1 percent to 5,120.80, and its June futures settled at 5,136. India VIX, a gauge of options prices in the Nifty, dropped 6.2 percent to 20.2, the lowest since June 18. Combined trading volume on India’s top two exchanges was 775 million shares yesterday, 14 percent less than the 12-month daily average of 903 million.
Reliance rose 1 percent to 723.5 rupees, the sharpest gain since June 19. Hindustan Unilever Ltd., the largest home products maker, dropped 2 percent to 450.7 rupees, the steepest decline since Feb. 6. ITC dropped 1.2 percent to 247.1 rupees.
HDFC Bank Ltd., the second-biggest lender, increased 1.3 percent to 543.5 rupees. Infosys Ltd., the second-largest software exporter, lost 1.1 percent to 2,440.4 rupees.
Jaiprakash Associates Ltd. rose 0.6 percent to 70 rupees after Mint newspaper reported that the Aditya Birla Group is leading the race to acquire the company’s cement unit.