MidCaps Advance for Second Day as Indian Funds Extend Purchases

  • Telecom, refiners, utilities top performers on mid-cap index
  • State Bank, ICICI Bank worst performers as RBI drains cash

India’s small- and mid-cap stocks climbed to a two-week high and the benchmark indexes rose for a second day as local institutional investors boosted purchases amid gains in Asian equities.

Bharti Airtel Ltd. rallied to a one-month high, sending a gauge of telecom companies to its best gain since February. Hindustan Petroleum Corp. rallied to a record, while Mangalore Refinery & Petroleum Ltd. soared 15 percent to the highest level since May 2008, the best performance on a gauge of medium-sized companies. Power generator NTPC Ltd. rose to a three-month high.

IndexChangeSize and Scope
BSE Sensex+0.1%Second day of gains
BSE MidCap+1%Two-week high
BSE SmallCap+0.7%Two-week high

Overseas investors have been pulling out of India since Nov. 9, the day after Donald Trump’s surprise U.S. election victory and India’s currency overhaul that’s sucked out 86 percent of the bills in circulation. Global funds have sold $2.2 billion of local shares this month, sending the S&P BSE Sensex down 5.7 percent in November, while institutional investors have bought $2.3 billion of equities, data compiled by Bloomberg show.

“Local investors see this as a ‘buy on dip’ market, and by and large they’re of the opinion that the government steps are good for the long-term,” Hiren Ved, chief investment officer at Alchemy Investment Management Ltd., said by phone from Mumbai. Finance companies, banks and consumer stocks may present “a good buying opportunity” as their valuations become attractive in the coming days, he said.

The Sensex is set for its biggest loss since February amid concern the cash crunch arising from the government’s recall of high-value currency notes will hurt economic growth. The measure may drag down gross domestic product in the year to March by 0.5 percentage points, Citigroup Inc. said in a report.

A gauge of lenders fell to a four-month low intraday after the Reserve Bank of India told banks to set aside more deposits in reserves to curb the surging liquidity produced by the Nov. 8 currency recall. Banks have been flooded with more than $73 billion in deposits after people started turning in 500- and 1,000-rupee notes that are no longer valid. Lenders were profiting by accepting this cash at 4 percent and lending to the central bank at 6.25 percent.

“The liquidity measure will put pressure on banks’ earnings,” said Sushant Kumar, a fund manager at the Mumbai-based Raay Global Investments Pvt. “State-owned lenders and smaller private banks will be under pressure. Indian markets will remain range-bound with a negative bias.”

The Sensex trades at 15.5 times 12-month projected earnings, near the cheapest level since May. That compares with the MSCI Emerging Markets Index’s multiple of 12.

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