MUMBAI (Reuters) - The BSE Sensex posted slight gains on Wednesday, but enough to notch its highest close since April 19, after government-owned lenders such as SBI rose as valuations were seen lagging private peers.
Miner Sesa Goa (SESA.NS) surged 4.3 percent after Karnataka recommended approval of eight iron ore mines in the state, including a 2.2 million tonnes-per-year mine owned by the unit of Vedanta Resources (VED.L).
However, the slight overall gains marked a third day of range-bound trading. Traders cited a period of consolidation after strong gains in June, when the BSE index rose 7.5 percent.
Foreign banks are becoming more optimistic about Indian shares, citing mainly valuations. UBS became the third investment bank after Deutsche Bank and J.P.Morgan in recent weeks to upgrade indexes to "overweight.
Still, the global risk environment will remain essential.
"Even the foreign brokerages started upgrading India. I think everybody was highly underweight and are now catching up," Hitash Dang, Vice President at Jaypee Capital
The BSE Sensex rose 0.2 percent to 17,462.81 points. The Nifty rose 0.3 percent to 5,302.55 points.
Although the BSE way outperformed the 3.5 percent gain in the MSCI Asia-Pacific index excluding Japan in June, the situation has reversed this month.
The regional index is up 2 percent this month versus a 0.2 percent gain for India's benchmark indicator.
In a separate report, Citigroup recommended investors to opt for cyclicals, saying valuations had lagged too far behind defensives and noting slowing economic growth had been sufficiently priced into shares.
Public sector banks were among the leading gainers on Wednesday.
State Bank of India rose 1.9 percent, while Punjab National Bank (PNBK.NS) rose 2.2 percent. Analysts said valuations have lagged private lenders.
SBI, for example, has gained 5 percent in June versus a 15 percent jump in shares of private lender ICICI (ICBK.NS).
The approval of new iron mines by Karnataka also sparked gains in Sterlite Industries (STRL.NS), which ended up 5.3 percent. Sterlite will be merged with Sesa Goa, as part of Vedanta's plans to consolidate some of its units.
A decision on whether to approve the state government's decision is expected from a Supreme Court-appointed committee later on Wednesday.
Steel makers gained at the prospect of new supplies from the mines. JSW Steel (JSTL.NS) rose 4.5 percent.
Shares of major air conditioner manufacturers rallied after weaker-than-expected rainfalls so far during the monsoon season are sparking hopes of increased sales.
Whirlpool India Ltd (WHIR.NS) shares rose 9.9 percent, while Voltas Ltd (VOLT.NS) rose 7.3 percent.
Shares in Ashok Leyland (ASOK.NS) rose 3.1 percent, a day after the company posted better-than-expected June vehicle sales, traders say.
However, some recent blue chip outperformers fell. Reliance Industries (RELI.NS) lost 0.3 percent, ending down for a third consecutive session after gaining 4.6 percent in June.
Oil and Natural Gas Corp (ONGC) (ONGC.NS) fell 2 percent having surged 14.7 percent since the start of June as of Tuesday's close on dropping oil prices.
(Additional reporting by Manoj Dharra; Editing by Rafael Nam)