- RBI allows banks' property value to be added to core capital
- SBI jumps most in 7 years; Bankex climbs most since May 2014
Indian stocks rallied, with the benchmark gauge posting its steepest two-day gain since May 2014, as state-run banks surged after the central bank eased rules allowing lenders to bolster capital ratios. The rupee strengthened to a one-month high.
State Bank of India surged the most since May 2009, while Bank of Baroda rose to a two-month high. Hero MotoCorp Ltd. advanced to a 13-month high after posting an increase in sales last month. Bharat Heavy Electricals Ltd., the largest power-equipment maker, rose the most in six months after winning an $800 million order.
The S&P BSE Sensex rallied 2 percent at the close in Mumbai, extending Tuesday’s 3.4 percent jump, which was the biggest since September 2013. The gauge has rebounded from its biggest monthly loss since November 2011, as optimism over the government’s budget increased and speculation mounted that the Reserve Bank of India would lower interest rates after Prime Minister Narendra Modi stuck with the budget deficit targets.
“The budget is good for the economy and the stock markets, which had seen a bout of pessimism over the last few weeks, is reviving,” Navneet Munot, chief investment officer at Mumbai-based SBI Funds Management Pvt., said in an interview to Bloomberg TV India. “Global cues are also helping us with a recovery in some of the other markets has well."
A global equities rally gained momentum in Asia trading as improving economic data from the U.S. and Australia spurred risk-taking. The MSCI Asia Pacific Index surged 2.8 percent, headed for its highest close since January as all 10 industry groups advanced. Japanese stocks jumped to the highest close in a month, Hong Kong’s Hang Seng Index rallied 3.1 percent and the Shanghai Composite Index increased 4.3 percent.
The S&P BSE Bankex of 10 lenders surged 4.9 percent, the most since May 2014. State Bank jumped 12 percent, the steepest advance since May 2009. Bank of Baroda rallied 6.8 percent, paring this year’s loss to 7.3 percent. Punjab National Bank rallied 6.8 percent. ICICI Bank Ltd. climbed 7.3 percent, extending the week’s rally to 19 percent.
The Reserve Bank of India allowed banks to revalue their real-estate assets and add 45 percent of the new property value to Tier 1 capital, according to a statement issued late Tuesday. The rule change will free up as much as 350 billion rupees for state-run banks, helping them boost capital buffers, according to Sophia Ng, an analyst at Bank of Tokyo-Mitsubishi UFJ Ltd.
The worst start to a year for Indian equities since 2011 in February left a gauge of 12 state lenders trading at 0.52 times its book value, a record low. Banks are grappling with rising bad loans amid the highest stressed-debt ratio in at least 14 years as a slower than expected revival in the economy erodes borrowers’ capacity to service debt. The RBI has has set a March 2017 deadline to help bolster balance sheets by increasing provisions.
“This is a good time to accumulate state-owned banks from a long-term perspective," Nitasha Shankar, vice president for equity research at Yes Securities Ltd. in Mumbai, said in an interview with Bloomberg TV India. “The RBI will give a huge amount of benefit to the state-owned lenders."
Twelve of 16 economists surveyed by Bloomberg after the budget expected Reserve Bank of India Governor Raghuram Rajan to lower the benchmark rate by as much as 50 basis points before the next review on April 5, while the other four predicted reductions sometime this year.
Hero MotoCorp jumped 5.2 percent to its highest level since Feb. 13, 2015 after its sales gained 13.6 percent in February. Maruti Suzuki India Ltd., the maker of half the cars sold in India, gained 3.4 percent.
Bharat Heavy jumped 4.6 percent, paring this year’s drop to 43 percent. The company on Tuesday said it won a 56-billion rupee order for a 1,600-megawatt thermal power project in the southern state of Tamil Nadu.
The Sensex has fallen 7.2 percent this year as overseas investors withdrew a net $2.9 billion from domestic stocks.