Indian equities fell, dragging a gauge of banks to a 10-month low, on concern the new liquidity tightening measures taken by the central bank to support the rupee will increase borrowing costs.
Yes Bank Ltd. tumbled the most in more than four years, pushing the S&P BSE Bankex to its lowest level since September. Eight of the 13 stocks on the gauge slumped at least 5 percent. State Bank of India slid 3.2 percent, depressing the stock’s price-to-book ratio to 1, the lowest reading since April 2009.
The S&P BSE Sensex retreated 1 percent to 20,090.68 at the close, after climbing to a 30-month high yesterday. The Reserve Bank of India limited banks’ access to cash and increased the daily balance requirement for the reserve ratio, stepping up efforts to steady the rupee which slid to a record this month. The RBI on July 15 raised two interest rates and moved to drain money through bond sales, joining emerging nations from Brazil to Indonesia in tightening credit to stabilize currencies.
“Profitability of lenders will get hit due to compression in net interest margins, lower economic growth and rising bad loans,” Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance Co. in Mumbai, said in a phone interview today. “Tighter liquidity will hurt economic growth further.”
Yes Bank plunged 13 percent to 383.35 rupees, the sharpest drop since October 2008. The lender’s net income in the three months ended June 30 climbed 38 percent to 4.01 billion rupees, according to an exchange filing. That beat the adjusted median estimate of 3.79 billion rupees in a Bloomberg survey.
The stock was the worst performer on the S&P BSE Bankex, which sank 4.6 percent to its lowest close since Sept. 14. The gauge has slid 18 percent from a record reached on May 15.
The recent moves by Reserve Bank Governor Duvvuri Subbarao contrast with his decisions to cut the benchmark interest rate by 25 basis points each in January, March and May, in a bid to fight the weakest economic growth in a decade. He left the rate unchanged at 7.25 percent in June. The next review is on July 30.
“There’s a halt in the march of private-sectors banks” because of an “about turn” in the central bank’s monetary policy, Raamdeo Agrawal, joint managing director of Motilal Oswal Financial Services Ltd. in Mumbai, said in an interview to Bloomberg TV India today.
State Bank retreated 3.2 percent to 1,801.25 rupees, a seven-month low. ICICI Bank Ltd., the nation’s second-biggest lender, lost 3.8 percent to 951.8 rupees. HDFC Bank Ltd., the biggest by market value, lost 3.5 percent to 659.95 rupees.
Engineering company Larsen & Toubro Ltd. retreated for the fourth day, losing 3.8 percent to 867.35 rupees. Maruti Suzuki India Ltd., the nation’s largest carmaker, plunged 2.3 percent to 1,416.05 rupees. Copper and zinc producer Sterlite Industries (India) Ltd. tumbled 3.1 percent to 81.95 rupees.
The Sensex has climbed 8.3 percent since June 26, helped by better-than-estimated corporate earnings. Six out the eight index members that have reported earnings so far for the June quarter beat analysts estimates. About 27 percent of companies in the gauge missed forecasts for the three months ended March, compared with 43 percent in the quarter through December.
The 30-stock gauge trades at 14.1 times projected 12-month earnings, the most expensive since February 2012, compared with the MSCI Emerging Markets Index’s 10.2 times.
Global funds bought $37 million of local shares on July 23, taking this year’s net purchases to $12.4 billion, data compiled by Bloomberg show. They have sold a net $961 million of domestic stocks this month, the most among 10 Asian markets tracked by Bloomberg, extending June’s $1.8 billion sell-off.
The CNX Nifty Index on the National Stock Exchange of India Ltd. plunged 1.4 percent to 5,990.50. India VIX, which gauges the cost of protection against losses in the Nifty, rose 1.1 percent, ending a four-day slide.