Indian Stocks Rise First Time in 3 Days Before RBI Meet

Indian stocks declined for a third day, led by lenders, after Punjab National Bank reported an increase in bad debts and the central bank kept interest rates unchanged.

Punjab National Bank tumbled the most since April 2009 after its gross bad-loan ratio widened to 5.97 percent in the three months ended December from 4.96 percent, sending a gauge of lenders to its lowest level in two weeks. Bajaj Auto Ltd., a motorcycle maker, retreated the most since May.

The S&P BSE Sensex slid 0.4 percent to 29,000.14 at the close, erasing an intraday advance of 0.5 percent. The Bankex index fell the most in a year on Jan. 30 after Bank of Baroda and ICICI Bank Ltd. set aside more money to cover soured debt, raising concerns about the economy’s strength after the Reserve Bank of India cut rates on Jan. 15 in a surprise move. Governor Raghuram Rajan left borrowing costs unchanged today, citing the need to see further data confirming inflation is cooling.

“The asset quality at banks remain worrisome,” Hemant Kanawala, head of equities at Kotak Mahindra Old Mutual Life Insurance Ltd., which has $2 billion in assets, told Bloomberg TV India today. “That is a bigger reason for the correction today rather the monetary policy, and it may continue as the earnings season progresses.”

The Bankex soared 65 percent in 2014, twice as much as the Sensex, as shares most tied to the economy rallied on falling oil prices and optimism that Prime Minister Narendra Modi will take steps to bolster growth.

Rally Overdone

The gauge’s price-to-book ratio climbed to 2.6, the most expensive level since December 2010, before Bank of Baroda and ICICI announced results last week. Its 14-day relative strength index increased to 78 on Jan. 27, above the 70 threshold that signals to some traders gains are overdone.

“Bank results have shown that the market has run ahead of fundamentals and an economic recovery will take more time than previously thought,” R.K. Gupta, managing director of Taurus Asset Management Co., which has about $660 million in assets, said by phone from New Delhi. “The RBI policy also did not give a reason to cheer.”

The RBI is among at least 12 monetary authorities around the world to have eased policy this year. The slump in crude prices since June has pushed inflation below Rajan’s 6 percent target, allowing him to focus on boosting expansion in Asia’s third-largest economy. India’s federal budget is due on Feb. 28.

Earnings Scorecard

Punjab National Bank tumbled 7.8 percent, extending this year’s loss to 19 percent. Bank of Baroda fell 1.5 percent, taking its four-day decline to 17 percent. ICICI Bank also slid 1.5 percent to its lowest level since Jan. 14. State Bank of India, the nation’s biggest lender, retreated 2.3 percent, while HDFC Bank Ltd. lost 1.6 percent.

Hero MotoCorp Ltd., a motorcycle maker, added 0.3 percent. The company may say its third-quarter profit rose 35 percent to 7.1 billion rupees ($115 million), according to the median estimate in a Bloomberg survey. The shares dropped 0.7 percent. Bajaj Auto tumbled 3.8 percent to its lowest since Sept. 3.

Ten out of the 13 Sensex members have announced earnings for the December quarter that beat or matched estimates. Net incomes at 67 percent of the 30 index firms beat or matched estimates in the September quarter, versus 46 percent in the three months ended June and 60 percent in March, data compiled by Bloomberg show.

Global investors sold a net $118 million of local shares on Feb. 2, paring this year’s inflows to $2.85 billion, still the most among eight Asian markets tracked by Bloomberg. They purchased $16 billion of stocks in 2014.

The Sensex has risen 5.5 percent in 2015, the second-most in U.S. dollar terms among 93 primary equity indexes tracked by Bloomberg. It trades at 16.1 times projected 12-month earnings, versus the MSCI Emerging Markets Index’s multiple of 11.6.

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