Indian Stocks End Four-Day Drop on Short-Covering Before Expiry

  • Rupee weakens for ninth straight day as foreign flows slow
  • Utilities, automakers climb; software exporters decline

Indian stocks climbed for the first time in five days in volatile trading as a rally in European equities spurred some investors to close their bearish bets before the expiry of monthly derivatives contracts on Thursday.

NTPC Ltd., the nation’s largest power generator, climbed the most in two weeks. Tata Motors Ltd., owner of Jaguar Land Rover, advanced to a one-week high. ICICI Bank Ltd. gained for a second day. Tata Consultancy Services Ltd. slid for a third day, dragging software makers lower. Sun Pharmaceutical Industries Ltd. decreased for a fifth day, capping the longest run of losses since March.

The S&P BSE Sensex added 0.3 percent at the close in Mumbai. The gauge, which changed direction at least 15 times during the first four hours of trading, entered positive territory as gains in European stocks prompted traders to close their positions before the expiry of monthly derivatives contracts on Thursday.

“Auto and bank stocks rose amid short covering before the expiry," Sahaj Agrawal, vice president of derivatives at Kotak Securities Ltd. in Ahmedabad in western India, said by phone. “We’re advising investors to take long positions” as the NSE Nifty 50 Index may climb past 8,000 next month, he said. The gauge rose 0.2 percent to 7,748.85 on Tuesday, above its support level of 7,650 tracked by Agrawal.

Fed Odds

Some $900 billion was wiped of the value of global equities over the last three days as prospects for a Fed rate increase in June, spurred by comments from Fed officials and minutes of the last policy meeting. Traders have boosted the probability of higher rates next month to 32 percent, up from 4 percent a week ago. Higher borrowing costs in the U.S. would temper flows to emerging markets.

Foreigners sold $5.3 million of local stocks on May 23, paring the month’s inflow to $163 million. They bought $585 million of shares in April and $4.1 billion in March, which was the most in three years. A slowdown in the flows caused the rupee to weaken for a ninth straight day on Tuesday, the longest run of losses since November 2007.

“The uncertainty about the June rate hike will induce volatility in the medium term and would possibly lead investors to sit on the sidelines," Manishi Raychaudhuri, Asia Equity Strategist at BNP Paribas Securities (Asia) Ltd., said in an interview with Bloomberg TV India. “The increased volatility is not an India-specific problem."

NTPC increased 2.1 percent, the most since May 9. Tata Motors added 1.9 percent. ICICI Bank rose 1.6 percent. Tata Consultancy slid 1 percent. Sun Pharma fell 1.6 percent.

The Indian operators of Domino’s Pizza Inc. and McDonald’s Corp. dropped after a local research agency said that burger and pizza bread sold at the fast-food outlets contained cancer-causing chemicals.

Jubilant Foodworks Ltd., a licensee of Domino’s, plunged 4.4 percent to its lowest level since March 1. WestLife Development Ltd., which runs McDonald’s restaurants in western and southern India, rose 1.1 percent at the close, erasing a 9 percent intraday slump.

The Center for Science and Environment (CSE) said Monday its study found that 84 percent of 38 brands of ready-to-eat breads sold in Delhi by fast-food chains including Domino’s, McDonald’s and Subway, contain potassium bromate and potassium iodate. The chemicals are banned in many countries because they may cause cancer, the agency said. Jubilant and WestLife denied the New Delhi-based public interest researcher’s report.

The Sensex has fallen 3.1 percent this year and trades at 15.6 times 12-month forward earnings. That compares with 11.3 times for the MSCI Emerging Markets Index.

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