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India’s Nifty Stock Futures Drop on Signs Europe Slowing

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July 5 (Bloomberg) -- Indian stocks climbed for the third day on expectation the European Central Bank will cut interest rate, and as a key adviser to the Prime Minister said tax rules for foreign investors should not be changed.

Tata Motors Ltd., the owner of Jaguar Land Rover, rose for the first time this week. ICICI Bank Ltd., the second-biggest lender, gained to its highest price since March. The BSE India Sensitive Index added 0.4 percent to 17,538.67.

The ECB cut its key borrowing cost to a record-low 0.75 percent to bolster growth in the region, India’s top trading partner. The decision came trading ended in Mumbai. India must “clarify” that it does not intend to alter the way overseas investments in local stocks and bonds are taxed, as the nation prepares rules to clamp down on tax avoidance, Montek Singh Ahluwalia, deputy chairman of the Planning Commission, said in an interview to Bloomberg UTV today.

“Sentiments have turned, both globally and locally, and investors are thinking it’s better to stay invested rather than stay out,” D.K. Aggarwal, the New Delhi-based chairman of SMC Investments & Advisors Ltd., said in an interview today. “The expectation is that policy makers will announce steps to boost growth. No one wants to be left behind.”

The Sensex has risen 3.7 percent since June 26 when Prime Minister Manmohan Singh decided to lead the country’s finance ministry after Pranab Mukherjee quit to vie for the presidency. Mukherjee outlined steps to tackle tax avoidance, the so-called General Anti-Avoidance Rule, in his budget speech on March 16, before retreating on the plan in May by delaying implementation until 2013 to salvage investor confidence.

“I hope they will clarify it in a way in which foreign institutional investors will be reassured that their investment is welcome,” Ahluwalia said.

Supermarkets

Singh has made reviving investment in India a priority, with growth at a nine-year low. Ahluwalia also said he hopes the government will “very soon” allow foreign companies to open supermarkets selling multiple brands, an industry closed off to foreigners and one that Singh is trying to open up.

The Sensex has gained 13.5 percent this year and trades at 13.8 times estimated earnings, compared with 10.3 times on the MSCI Emerging Markets Index. Valuations have rebounded from a three-year low of 12.4 times set on May 23.

The S&P CNX Nifty Index on the National Stock Exchange of India climbed 0.5 percent to 5,327.30. Its July futures settled at 5,339. The BSE 200 Index rose 0.5 percent to 2,167.82.

India VIX, a gauge of options prices in the Nifty, added 0.4 percent to 18.35, its first climb in five days. Combined volume on the nation’s top two bourses was 995 million shares yesterday, 10 percent more than the 12-month daily average.

Auto Stocks

Tata Motors, the maker of the world’s cheapest car, the Nano, jumped 1.6 percent to 240 rupees, extending this year’s gain to 34 percent. Maruti Suzuki India Ltd., the top carmaker, rose 1.6 percent to 1,240.3 rupees, its fifth day of advance. Drugmaker Cipla Ltd. added 2.6 percent to 324.45 rupees.

ICICI Bank gained 2 percent to 920.85 rupees. HDFC Bank Ltd., the third-biggest lender, rose 1.1 percent to 584.1 rupees. ITC Ltd., the largest cigarette company, 1.8 percent to 250.6 rupees. Bharat Heavy Electricals Ltd., the biggest power-equipment maker, gained 1.1 percent to 235.65 rupees.

Overseas funds bought a net $55 million of Indian stocks yesterday, raising their investment this year to $9.3 billion, according to the nation’s market regulator. That’s a record for the period, according to data compiled by Bloomberg.

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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