Indian Mid-Cap Stocks Beat Sensex as RBI Signals Further Easing

  • Jindal Steel & Power, Bajaj Finserv among top mid-cap gainers
  • November foreign outflows from local shares most since August

India’s small- and medium-sized companies climbed to a five-week high after the central bank signaled it could ease monetary policy further even as it maintained interest rates on Tuesday.

Jindal Steel & Power Ltd. rallied to more than a five-month high, while JSW Steel Ltd. climbed to its highest close in 10 weeks. UPL Ltd., the largest manufacturer of agrochemicals, jumped the most in three weeks, while power generators Neyveli Lignite Corp. and Torrent Power Ltd. gained at least 3.4 percent. Bajaj Finserv Ltd., the nation’s top financial-services company by market value, rallied to a three-month high.

The S&P BSE MidSmallCap Index increased 0.6 percent to the highest level since Oct. 20 even as the S&P BSE Sensex ended little changed at a three-week high. With Reserve Bank of India Governor Raghuram Rajan holding the key rate after four cuts this year, a move predicted by all 47 economists in a Bloomberg survey, investor attention shifted back to buying stocks that benefit from policy measures aimed at boosting growth, according to Karvy Stock Broking Ltd.

“Infrastructure clearances are coming, construction activity is picking up, FDI norms have been eased, and stocks that benefit from it may be outside the larger indexes,” Kaushik Dani, a fund manager at Karvy, said by telephone from Mumbai. “The RBI policy was on expected lines.” Dani said he’s bullish on stocks related to urban consumption, including automakers and financial-services companies.

GDP Expansion

India’s economy grew 7.4 percent in the three months through September -- topping estimates -- and is set to outpace a slowing China this year as Prime Minister Narendra Modi boosts infrastructure spending, official data showed after market hours on Monday. The Sensex climbed for two straight weeks through Friday after the government eased foreign investment rules in 15 industries and amid optimism Modi will push through the parliament a bill for a unified sales tax, one of India’s biggest reforms since the 1990s.

Among Sensex stocks, Tata Steel Ltd. rose to a one-month high. Vedanta Ltd. surged the most since October, while Hindalco Industries Ltd. gained to a two-week high after global metal prices climbed. The stocks were among the best performers on the benchmark. Coal India Ltd., extended last month’s 3.3 percent advance.

Inflation Outlook

Rajan, who took advantage of a commodity slump to slash one of Asia’s highest borrowing costs, now has to contend with rising food prices that are fanning inflationary pressures. Consumer-price gains accelerated to 5 percent in October, led by a surge in food items such as lentils, matching Rajan’s target for March 2017.

An anticipated increase in U.S. interest rates this month also risks triggering capital outflows. Foreign funds sold $1.1 billion of local stocks in November, the most since August, data compiled by Bloomberg show.

“The Reserve Bank will use the space for further accommodation, when available, while keeping the economy anchored to the projected disinflation path that should take inflation down to 5 percent by March 2017,” Rajan said.

The Sensex has fallen 4.8 percent this year and trades at 15.5 times projected 12-month earnings. The MSCI Emerging Markets Index is valued at a multiple of 11.

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