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State Bank of India Rallies as Modi Poised for Election Victory

Indian bank stocks rallied the most since September on expectations Narendra Modi’s coalition will win a parliamentary majority in elections, paving the way for policies that may boost economic growth and cut bad loans.

The 12-stock S&P BSE Bankex index rose 7.3 percent, the biggest intraday gain since Sept. 19, to 17,464.97 as of 11:37 a.m. in Mumbai. State Bank of India, the country’s largest, gained 7.1 percent, while HDFC Bank Ltd. jumped 6.4 percent. Canara Bank surged 14 percent, the most since Aug. 21.

Vote counting shows Modi’s Bharatiya Janata Party and its allies lead in 323 of 542 seats where results are available, more than the 272 needed for a majority. Modi, 63, promoted his record of stronger-than-average growth in the state of Gujarat, where he’s been chief minister since 2001.

“Investors are expecting an improvement in the banks’ earnings profile as bad-loan ratios shrink and demand for loans rises,” Vishal Narnolia, a Mumbai-based banking analyst at SMC Global Securities Ltd., said by phone today. “A bounce-back in profits can be expected in the next two quarters.”

The nation’s slowing economy has driven banks’ bad loans to 4.2 percent of total lending as of Sept. 30 from 2.4 percent in March 2011, central bank data show. India’s economy expanded 4.9 percent in the year ended March, less than the 10-year average of about 8 percent.

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