Indian equity futures dropped to the lowest level in 21 months versus the underlying stock gauge on Tuesday, signaling concern that the central bank’s interest-rate cut won’t do enough to boost the economy.
CNX Nifty Index futures for June delivery slumped 2.5 percent to 8,225.35 at Tuesday’s close in Mumbai, while the 50-member Nifty dropped 2.3 to 8,236.45, its steepest fall in three weeks. Their ratio is the lowest since August 2013, according to data compiled by Bloomberg. SGX CNX Nifty Index futures lost 0.3 percent to 8,203.5 at 10:59 a.m. in Singapore.
Reserve Bank of India Governor Raghuram Rajan cut the repurchase rate by 25 basis points to 7.25 percent on Tuesday, saying he will assess monsoon rains before acting again. Stocks and equity futures extended losses after the government said this year’s rainfall is forecast to be even less than its prediction in April. The report, which came less than two hours after the rate decision, raised concern weather conditions could discourage further rate cuts by the central bank.
“The RBI focus on inflation away from growth has compounded market concerns,” Chakri Lokapriya, chief investment officer at TCG Advisory Services Pvt., which manages $3 billion of assets worldwide, said by phone from Mumbai. “The onus for rate action is now on the monsoon, oil prices and global volatility -- external factors on which we have little control.”
India gets more than 70 percent of its annual rainfall from the monsoon season. Below-normal showers may fan prices of everything from rice to lentils and vegetables in Asia’s third-largest economy, where food costs account for almost 50 percent of the consumer price index.
The VIX Index, a gauge of protection against stock swings using options, fell 0.6 percent to 16.82 on Tuesday. The 30-stock S&P BSE Sensex dropped 2.4 percent to 27,188.38.