India’s Index Futures, Rupee Forwards Fall After Terror Attacks

By Chen Shiyin and Pooja Thakur

Nov. 27 (Bloomberg) -- India’s stock index futures and rupee forwards fell while credit-default swaps rose after militants killed 101 people in Mumbai, taking hostages in the first terrorist attack against foreigners.

S&P CNX Nifty Index futures for November delivery dropped the most in more than a week. Stocks, bonds and rupee trading were shut for the first time in more than three years as Indian commandos battled to free hostages held by gunmen at two hotels.

The assault, injuring 287, may worsen the effect of a global rout that helped to drive India’s benchmark Bombay Stock Exchange Sensitive Index, or Sensex, 56 percent lower this year, set for its worst performance on record.

“It is worrying that the targets were foreigners and businessmen,” said Ajay Bodke, who helps manage the equivalent of $872 million at IDFC Assets Management Co. in Mumbai. “We will see a ripple effect in terms of investor sentiment as the terrorist attack was in the financial hub and in iconic places. India needs to deal with this with an iron hand.”

Both the Bombay Stock Exchange and National Stock Exchange were shut, along with bond, foreign exchange, commodities and money markets, bourse officials and the central bank said.

Nifty futures retreated 3.5 percent to 2,653.0 as of 3:46 p.m. in Singapore. Most indexes climbed in Asia today, with the MSCI Asia-Pacific Index advancing 1.5 percent.

Taking Money Out

The futures contract, based on the 50 stocks on the underlying S&P CNX Nifty Index on the National Stock Exchange of India Ltd., added 4.1 percent in Mumbai yesterday. The expiry date of November futures will be delayed to Nov. 28, Singapore Exchange Ltd. said.

“The terrorist attacks are adding to the already quite fragile situation in India, which is seeing investors take money out of its stock market,” said Sebastien Barbe, a Hong Kong- based economist for Calyon.

Among India-linked shares traded in Singapore, Indiabulls Properties Investment Trust fell 8.3 percent to 16.5 cents. Ascendas India Trust, an owner of industrial properties in India, dropped 6.4 percent to 44 Singapore cents. iShares MSCI India, an exchange traded fund, declined 1.6 percent to $3.12, halting three days of gains.

Singapore Telecommunications Ltd., owner of a 31 percent stake in India’s largest mobile-phone operator, dropped 5.3 percent to S$2.49. The company and its associate, Bharti Airtel Ltd., are monitoring developments in India “closely,” it said.

‘Knee-Jerk Selling’

Non-deliverable forwards on India’s rupee retreated 0.8 percent to 50.15 per dollar. Forwards are agreement in which assets are bought and sold at current prices for delivery at a later specified time and date. Non-deliverable contracts are settled in dollars.

The attack “might be an excuse for some knee-jerk selling,” said V. Anantha-Nageswaran, chief investment officer for Asia Pacific at Bank Julius Baer (Singapore) Ltd., which manages $350 billion in assets worldwide. “Our views on India have been cautious even before this, primarily because of the global slowdown, the current account deficit.”

The cost of protecting corporate bonds from default rose in India following the violence. Credit-default swaps on government- controlled State Bank of India Ltd. rose 15 basis points to 412.5 at 12:02 p.m., Morgan Stanley prices show.

Contracts on ICICI Bank Ltd., India’s second-largest lender, were last quoted 15 basis points higher at 715, according to Morgan Stanley. A basis point, or 0.01 percentage point, is worth $1,000 on a swap protecting $10 million of debt.

Reports of Hostages

India last shut its stock and bond markets in July 2005 after monsoon rains disrupted Mumbai and other areas in the western state of Maharashtra. Trading of shares had been temporarily disrupted in 1993 after a series of explosions in the city killed at least 70 people, the last time the exchange was shut because of a terrorist attack.

Fire spread through the luxury Taj Mahal Palace and Tower hotel, where militants were holding as many as 15 people hostage, the Press Trust of India reported. A little-known Islamist group called the Deccan Mujahadeen claimed responsibility for the attacks, PTI said.

The Sensex has tumbled 57 percent since rising to a record high of 20,873.33 on Jan. 8. The gauge had climbed for the previous six years, on speculation that economic expansion will drive profit growth for the nation’s companies.

Rising Outflows

Overseas funds sold a net 3.12 billion rupees ($63 million) of Indian stocks on Nov. 24, increasing outflows from equities this year to $13.5 billion, the nation’s market regulator said.

Yesterday, the Sensex climbed 3.8 percent to 9,026.72, the most since Nov. 21, after China slashed its key lending rate by the most in 11 years and the U.S. committed as much as $800 billion to unfreeze lending.

The rupee, the third-worst performer among Asia’s 10 most- active currencies outside Japan this year, is down 20 percent this year. It gained 1.1 percent to 49.435 per dollar yesterday in Mumbai, according to data compiled by Bloomberg.

India’s 10-year bonds gained yesterday, pushing yields to 7.1 percent, the lowest since January 2006 as a drop in crude oil prices fanned speculation inflation will slow. Takahira Ogawa, a Singapore-based director at Standard & Poor’s, said today the shootings and blasts won’t affect India’s sovereign rating.

Local-currency bonds are the best performers this year among 10 Asian debt markets outside Japan, returning 11.1 percent, according to HSBC Holdings Plc. They are rated BBB- by Standard & Poor’s, the lowest investment grade.

Interest-Rate Swaps

Interest-rate swap rates have almost halved from a record level reached in June. The five-year swap rate, a fixed rate paid to receive a floating rate, fell to 5.74 percent yesterday from a record of 10.57 percent in June. Overnight money-market rates have fallen to less than a third of the 19-month high of 20 percent reached on Oct. 31 as the central bank cut borrowing costs. The Reserve Bank of India has lowered its key repurchase rate by 1.5 percentage points since Oct. 20.

Finance Minister Palaniappan Chidambaram predicted last week economic growth will “bounce back” to 9 percent next year, from at least 7 percent this year, driven by record crop plantings, public sector pay increases and tax breaks.

“Domestic industries can build high profits and growth,” Mark Mobius, 72, who manages more than $24 billion in emerging- market assets as executive chairman at San Mateo, California based Templeton Asset Management Ltd., said in a Nov. 22 interview. He is buying Indian consumer-related stocks.

Still, a rebound in the nation’s equities will have to contend with intensifying turbulence. Multiple attacks have rocked India’s cities this year with bombs planted in markets, theaters and near mosques. Mumbai, formerly known as Bombay, is home to the nation’s biggest stock and commodity exchanges and the main center of rupee trading.

“India is a large country and these things have been happening now and then,” said Tan Teng Boo, who helps oversee about $200 million at iCapital Global Fund in Kuala Lumpur. “The bigger worry for Indian stocks is the macroeconomic uncertainty and the ability of the prime minister to continue reform programs.”

To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Pooja Thakur in Mumbai at pthakur@bloomberg.net