Photographer: Dhiraj Singh/Bloomberg

MidCaps Drop From Record as India's Sensex Closes Flat on Expiry

  • Roll cost for August contracts higher than three-month average
  • Housing Development Finance Corp, HDFC Bank at all-time highs

India’s mid-cap stocks fell from a record even as the nation’s benchmark equity index gave up gains to close little changed on expiry of monthly derivatives contracts.

The S&P BSE Mid-Cap Index ended four days of advances led by IDBI Bank Ltd., which had its steepest decline in two months. The S&P BSE Sensex added as much as 0.9 percent earlier in the day as traders replaced July contracts with August securities. Those gains evaporated in the final hour of the session, with the gauge ending at Wednesday’s record close.

Financials were the only bright spot among the Sensex members, with Housing Development Finance Corp., India’s largest home-loan provider, and HDFC Bank Ltd. climbing to all-time highs. State Bank of India and Kotak Mahindra Bank Ltd. were also among the 10 biggest gainers on the index.

“With mid-cap stocks looking expensive, money is chasing the larger companies that have significant weighting in the benchmark index,” said Deven Choksey, managing director of K.R. Choksey Shares & Securities Pvt.

Global and local funds have pumped about $16 billion into Indian stocks this year, making the Sensex one of the world’s top performers in 2017. A bulk of the domestic money has flown into the broader market, helping the mid-cap index post gains in all but one month this year. It trades at 33 times reported earnings, versus 24 for the benchmark gauge.

Better-than-expected corporate earnings so far in the reporting season has also improved investor sentiment. Of the 22 NSE 50 Nifty Index companies that have announced results, profit for 17 have either met or beaten estimates, allaying concern inventory adjustment before the July 1 start of India’s unified sales would weigh on April-June earnings. 

“Earnings undoubtedly have been better-than-expected,” Choksey said.

The roll cost, or the price traders pay to replace current month futures with August securities, was 45 basis points as of 3:30 pm in Mumbai on July expiry, compared with the three-month mean of 35 basis points, data compiled by Bloomberg show. The higher cost implies investors are prepared to pay more to buy new contracts on the NSE Nifty 50 Index.

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