Indian equities fluctuated, with industrials outweighing gains in consumer stocks, as investors weighed the prospects for a US interest-rate increase next month and its impact on capital flows.
Tata Steel and Lupin were the biggest decliners on the S&P BSE Sensex. ITC, which has the third-highest weighting on the index, jumped after announcing a plan to issue free shares. Hindustan Unilever (HUL) rose after capping a five-week losing streak on Friday, the longest in more than three years.
The Sensex closed 0.28%, or 71.54 points, lower at 25,230.36 in Mumbai, after rising as much as 0.9% earlier, while NSE Nifty 50 Index lost 0.24%, or 18.65 points, to 7,731.05. The indexes declined last week on concern the US Federal Reserve may increase borrowing costs as early as next month. Higher rates in the US would temper inflows to emerging markets. Global funds have bought $271mn of Indian shares this month, versus $585mn in April and $4.1bn in March, which was the biggest inflow in three years.
“The market is in a tight range, and any upside will be capped unless clarity emerges on the Fed interest rates and the monsoon’s progress,” Paras Bothra, a Mumbai-based vice president of equity research at Ashika Stock Broking, said by phone. “It will take a lot of good news for the Nifty to break the 8,000-mark.”
Odds of an interest-rate increase next month are now at 28%, up from 4% a week ago. Federal Reserve policy makers indicate a hike in June would be likely if the economy continues to improve. John Williams, president of the Fed Bank of San Francisco, said Sunday on Fox News the US economy should be solid enough to merit raising rates in 2016.
Southwest monsoon has hit the Andaman and Nicobar island two days before its normal date, but a cyclone in the Bay of Bengal is likely to weaken its progress, likely delaying the onset of the four-month rainy season, the weather bureau said last week. The agency has predicted the monsoon to set over the southern Kerala state on June 7, a delay of six days from the normal onset date of June 1.
ITC soared 5.29%, extending last week’s 3.4% gain. The company announced on Friday towards the close of trade it will give a free share for every two held. It also reported fourth-quarter net income of Rs2,500 crore, matching the analysts estimate Rs2,520 crore. Sales of Rs10,060 crore beat the estimate Rs9790 crore.
Tata Steel declined 2.88% in a third day of decline. Lupin shed 2.57%.
Adani Ports and Special Economic Zone rose 1.77%, set for its best two-day gain in six weeks. Power Grid Corp of India rose for a third day after the BSE said the company will be added to the starting next month.
Meanwhile the rupee yesterday erased all the gains and closed weaker against the US dollar for the eight consecutive session, after foreign institutional investors (FIIs) continued to liquidate their investment in debt markets. The fall in local equity markets for the fourth consecutive session also dampened sentiment.
The home currency closed at 67.50, a level last seen on March 2, down 0.07% from its previous close of 67.45. The rupee opened at 67.30 per US dollar and touched a high and a low of 67.26 and 67.50, respectively. So far this year, the rupee has weakened 2%.
Foreign investors have turned net sellers of Indian debt following a steeper-than-expected increase in inflation in April, which has reduced the possibility of further interest rate reductions from the Reserve Bank of India (RBI). The increased probability of a hike in interest rates by the US Federal Reserve during its June meeting may add to the negative sentiment around emerging market debt.
Foreign institutional investors (FIIs) have sold nearly $860mn in debt over the last nine trading sessions and have been sellers on all but one trading session over this period. So far this year, FIIs have remained net sellers of Indian debt and have offloaded $903.14mn in domestic bonds.
India’s 10-year bond yield closed at 7.466%, as compared with its Friday’s close of 7.478%.
Asian currencies closed higher. Japanese yen was up 0.7%, South Korean won 0.62%, Indonesian rupiah 0.25%, Taiwan dollar 0.14%, Singapore dollar 0.07%.