Sept. 5 (Bloomberg) -- Indian stocks surged the most among major Asian markets, led by the biggest rally in lenders since May 2009, after central bank Governor Raghuram Rajan outlined plans to bolster the financial industry and stabilize the rupee.
HDFC Bank Ltd., India’s largest lender by market value, surged 8.1 percent and paced the biggest rally in the S&P BSE India Bankex index in four years. Engineering company Larsen & Toubro Ltd. climbed the most in more than two months. Bharat Heavy Electricals Ltd. rallied the most since May 2009. The Bank of New York Mellon India ADR Index climbed 3 percent to a three-week high of 951.57 at 1:40 p.m. in New York.
The S&P BSE Sensex increased 2.2 percent to 18,979.76 at the close. Reserve Bank of India Governor Rajan announced plans yesterday to make it easier for banks to open branches and lend to non-state sectors of the economy, measures that JPMorgan Chase & Co. analysts say will have a “major long-term impact” on bank profits. The RBI will also provide swaps for banks’ foreign-currency deposits that Bank of America Merrill Lynch estimates will boost India’s reserves by $10 billion.
“It’s all about restoring confidence and that Rajan has definitely done,” Sunil Singhania, head of equities at Reliance Capital Asset Management Ltd., which manages India’s second-biggest mutual fund with $15 billion in assets, said in an interview on Bloomberg TV India today. “He has sent a clear signal that the RBI will do everything needed to face the challenges. The market is reflecting that confidence.”
Rajan, the former International Monetary Fund chief economist, is contending with a currency that has plunged 17 percent this year and consumer-prices increases of almost 10 percent. India’s economy grew 4.4 percent in the quarter ended June, the weakest pace since 2009. The rupee strengthened 1.5 percent to 66.1150 per dollar.
HDFC Bank advanced 8.1 percent to 609.5 rupees and ICICI Bank Ltd. soared 9.3 percent to 893.7 rupees. The gain in both lenders was the biggest since May 2009. Yes Bank Ltd. surged 22 percent, paring this year’s loss to 38 percent. The Bankex rose 9.3 percent, narrowing the year-to-date loss to 23 percent.
There’s a need to cut the requirement for banks to invest in government debt and ensure lending to productive sectors of the economy, Rajan said yesterday. The RBI will look at ways to improve the recovery mechanism for bad loans and propose a database for large loans across banks, he said.
Bad debts rose to 3.92 percent of total lending at the end of June, the highest level in at least five years, from 3.4 percent at the end of March, according to central bank data.
“Rising bad loans are the biggest concern for investors, and if Rajan can tackle that then it will be the biggest boost to lenders’ profits and sentiment,” Manish Sonthalia, a money manager at Motilal Oswal Asset Management Co. in Mumbai, said in a phone interview today.
Larsen increased 4.1 percent to 727.8 rupees and Bharat Heavy added 8.5 percent to 138.05 rupees, helping the S&P BSE Capital Goods Index to its biggest gain in more than two months.
The Sensex declined 19 percent in dollar terms this year. The gauge, valued at 13.5 times projected 12-month profits, has lost 2.3 percent this year in local currency terms.
The CNX Nifty on the National Stock Exchange increased 2.7 percent to 5,592.95. India VIX, which gauges the cost of protection against losses in the Nifty, fell 8.3 percent.
Global funds bought a net $15.3 million of local shares on Sept. 4, data from the regulator’s website show. That increased this year’s inflow to $11.5 billion.
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