Indian Banking Stocks Rebound From Loss; Larsen, Reliance Drop

Indian banking stocks climbed after last week’s plunge drove valuations to their cheapest level in three years versus the benchmark gauge. Larsen & Toubro Ltd. and Reliance Industries Ltd. dropped after reporting earnings.

The S&P BSE Bankex index of 13 lenders added 1 percent after tumbling 6.2 percent last week. ICICI Bank Ltd., India’s biggest private lender by assets, rebounded 1.6 percent from a 10-month low. Larsen, India’s biggest builder of power networks and airports, slumped the most in four years. Reliance slid 1.6 percent, ending a seven-day rally.

The S&P BSE Sensex rose 0.1 percent to 20,159.12 at the close. Volume was 12 percent below the 30-day average. Banks slumped last week after the central bank raised two interest rates to steady the rupee. Larsen’s profit dropped 13 percent to 7.56 billion rupees ($127 million) in the June quarter. That trailed the 9.06 billion-rupee median of 38 analysts’ estimates in a Bloomberg survey.

“Banks are rebounding from an oversold zone,” Sandeep Gupta, head of equity advisory with Motilal Oswal Securities Ltd., said by phone from Mumbai today. Lenders’ shares “had reacted quite a bit to the RBI’s measures.”

Reserve Bank of India Governor Duvvuri Subbarao increased the bank rate and the marginal standing facility rate on July 15 and capped daily fund injections via repo contracts, after the rupee sank to a record-low against the dollar.

ICICI Bank advanced 1.6 percent to 974.45 rupees in its steepest gain since July 11. Bank of Baroda rose 3 percent to 589.2 rupees. Mortgage lender Housing Development Finance Corp. climbed 3.4 percent to 830.3 rupees.

The Bankex index trades at 11.5 times reported earnings, compared with the Sensex’s 17.5 multiple. That’s the widest discount since March 2010, data compiled by Bloomberg show.

Earnings Scorecard

Larsen slumped 7.4 percent to 901.5 rupees, the steepest decline since July 2009. Reliance dropped 1.6 percent to 909.05 rupees after its sales fell 4.6 percent in the June quarter.

Only two out of the seven Sensex members that have posted earnings so far have missed analysts estimates for the three months ended June. That compares with 27 percent companies that missed forecasts for the March quarter and 43 percent in the three months through December, data compiled by Bloomberg show.

The RBI’s move to raise two of its interest rates while keeping the main repurchase rate unchanged doesn’t signal a shift toward a tightening bias, Finance Minister Palaniappan Chidambaram said.

“What I think the central bank did a few days ago is not to be understood as affecting the policy rate one way or another,” Chidambaram said in an interview July 20 in Moscow, where he’s attending a meeting of Group of 20 finance ministers and central bankers. “That decision will be taken separately.”

Fund Flows

Global investors bought $67 million of local shares on July 19, taking this year’s inflows to $12.4 billion, data compiled by Bloomberg show. Overseas funds have sold a net $934 million of Indian stocks this month, the highest among 10 Asian markets tracked by Bloomberg, extending June’s $1.8 billion sell-off, the data show.

The Sensex has gained 3.8 percent this year and trades at 14 times projected 12-month earnings, compared with the MSCI Emerging Markets Index’s 9.9 times.

The CNX Nifty Index on the National Stock Exchange of India Ltd. gained less than 0.1 percent to 6,031.80. India VIX, which gauges the cost of protection against losses in the Nifty, fell 2.8 percent.

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