- Small and mid-caps selloff on stretched prices, valuations
- Losses in small caps may continue amid weak investor sentiment
Indian stocks rebounded from a 19-month low after Reliance Industries Ltd. rallied in whipsaw trading even as the nation’s smaller companies tumbled.
Reliance, owner of the world’s largest refining complex, was the best performer on the S&P BSE Sensex. Infosys Ltd., the second-biggest software exporter, rebounded from a one-month low. Tata Motors Ltd. rose to a one-week high. HDFC Bank Ltd. and ICICI Bank Ltd. gained more than 1 percent each. Marksans Pharma Ltd. slumped by the 20 percent limit, the most on a gauge of small-cap stocks.
The Sensex rose 0.7 percent at the close in Mumbai after a recovery in the final hours erased a drop of as much as 1.2 percent. The S&P BSE SmallCap gauge tumbled as much as 4.2 percent, the most since August, before a bout of late-buying helped the gauge close at a one-month low. Losses in the smaller companies could worsen as their valuations are still higher than their larger peers, according to Dimensions Consulting Pvt.
“People had over-invested in the mid caps in the hope that they will do better than the main-line stocks, and they are nervous now,” Ajay Srivastava, managing director at Dimensions, said by phone from New Delhi. “We are advising investors to sit on the sidelines. There’s no hurry to invest.”
The Sensex trades at 18.9 times reported earnings, the cheapest in three years versus the S&P BSE MidCap Index, which is valued at 25 times. The small-cap gauge has a multiple of 57. The small- and mid-cap measures advanced for a second year in 2015 even as the benchmark index had its first annual loss in four years.
The Sensex has fallen 4.8 percent in January, heading for a third monthly loss, as global funds sold riskier assets amid a turmoil in China’s stocks and currency. The gauge’s 10-day volatility is the highest since October while its 14-day relative-strength index fell to 32.1 on Tuesday, close to a level that signals to some traders a security is oversold.
“There was a lot of interest from retail investors and local funds, who wanted to buy the dips,” Abhimanyu Sofat, the Mumbai-based co-founder of AdviseSure Ventures Pvt., an investment advisory firm, said by phone. “Value emerged after the initial fall, causing prices to rebound.”
Reliance, HDFC Bank
Reliance rallied 3 percent to its highest level since June 2014. Infosys jumped 3.2 percent ahead of its quarterly earnings on Thursday. HDFC Bank advanced 1.3 percent, ending two days of decline. ICICI Bank increased 1.2 percent, halting five days of drop. Tata Motors, the owner of Jaguar Land Rover, climbed 2.7 percent.
Reliance Infrastructure Ltd., controlled by billionaire Anil Ambani, was the biggest decliner on the S&P BSE 100 Index. Reliance Power Ltd. slid 2 percent and Reliance Communications Ltd. slid 1.4 percent.
Tata Consultancy Services Ltd., Asia’s largest software exporter, tumbled the most in two months after its quarterly sales fell short of estimates even as profit climbed more than expected. Group revenue rose 11.7 percent to 273.6 billion rupees ($4.1 billion) in the quarter through December, missing estimates in a Bloomberg survey. The stock tumbled 2.1 percent to its lowest level since June 2014.
Fifty-seven percent of Sensex companies in the September quarter posted earnings that matched or beat estimates, versus 60 percent in June, data compiled by Bloomberg show.
Marksans Pharma plunged the most since January 1998, after the company said U.K drug regulator made certain observations on its Goa plant.
Global funds sold a net $157 million of Indian stocks on Jan. 11, extending this year’s outflows to $497 million. The Sensex trades at 15 times its projected 12-month profits, compared with a multiple of 10.5 for the MSCI Emerging Markets Index.