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India’s Sensex Rebounds After Three-Week Decline; Lenders Climb

Indian stocks rebounded after three weeks of declines. Lenders and industrial companies climbed.

The BSE India Sensitive Index, or Sensex, rose 0.2 percent to 19,501.08 at the close, with trading volumes 27 percent less than the 30-day average. Housing Development Finance Corp., the biggest mortgage lender, advanced to a one-month high. Larsen & Toubro Ltd, the nation’s largest engineering company, had the sharpest increase in a month.

The Sensex is valued at 13.5 times estimated earnings for the year ending March 2014, down from this year’s highest level of 13.94 times on Jan. 25 when the measure closed at a two-year high, data compiled by Bloomberg show. That compares with a multiple of 9.4 times for the MSCI Emerging Markets Index. The BSE Mid-Cap Index trades at 10.4 times estimated earnings, down from a two-year high of 11.86 times on Jan. 8, the data show.

“The market has declined and is looking relatively cheap on valuations,” Vaibhav Sanghavi, director at Ambit Investment Advisors Pvt. in Mumbai, said by telephone. “Equities look extremely attractive in the longer term even as concerns remain over inflation in the shorter term.”

HDFC rose 1.5 percent to 824.45 rupees, the highest close since Jan. 15. State Bank of India, the nation’s largest lender by assets, gained 1.3 percent to 2,262.7 rupees, the most since Jan. 25. Larsen & Toubro added 1.7 percent to 1,468.95 rupees, the biggest gain since Jan. 21. Tata Steel Ltd. increased 2.4 percent to 385.25 rupees, the steepest advance in two months.

Reliance Industries Ltd., the owner of the world’s largest oil-refining complex with the second-highest weightage on the Sensex, climbed for the first time in three days.

Sensex Rally

The Sensex may rise as high as 24,000 in the fiscal year starting April 1 if the government’s policy changes continue, Nilesh Sathe, chief executive officer of LIC Nomura Mutual Fund Asset Management Co., said in a Feb. 15 interview. This month’s decline in the gauge is because of “consolidation as investors wait for budget announcements,” he said.

Finance Minister Palaniappan Chidambaram, who unveils the annual budget on Feb. 28, has vowed spending curbs to avert a credit rating downgrade and damp inflation, part of a wider policy overhaul since September to revive an economy expanding at the weakest pace in a decade. Standard & Poor’s and Fitch Ratings said last year that they may demote the nation to junk status because of its budget and current-account deficits.

The measures prompted foreign funds to plow a net $7.92 billion into local stocks this year, extending purchases of $24.5 billion in 2012, which were the most among the 10 Asian markets tracked by Bloomberg.

‘Virtuous Cycle’

“The finance minister is trying to improve sentiment and confidence to get people to feel more comfortable and hopefully that will trigger off a virtuous cycle,” Akash Prakash, chief executive officer at Amansa Capital Pte., said in an interview on Bloomberg TV India today. “He needs the markets to go up to free up capital for the government as well as for corporates.”

Profit at 43 percent of the 30 Sensex companies trailed estimates in the December quarter, compared with 40 percent in the previous two quarters, data compiled by Bloomberg show. The nation’s industrial output fell for a second month in December and consumer-price index climbed to 10.79 percent in January, according to government data.

While an expansion in economic growth is “going to be gradual, the improvement will depend on a number of factors, but I believe that largely perhaps, the worst is behind us,” Reserve Bank of India Governor Duvvuri Subbarao said Feb. 16 in Moscow where he was attending Group of 20 meetings.

Subbarao estimated economic expansion of 5.5 percent for the 12 months ending March 2013, above the statistics office projection of 5 percent made on Feb. 7.

The CNX Nifty Index of the National Stock Exchange added 0.2 percent to 5,898.20. India VIX, which measures the cost of protection against losses in the Nifty, surged 6.9 percent, the highest since Dec. 5.

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