Mid-cap stocks advance; Sensex near year high

Indian gauges of mid- and small-cap shares extended gains to records and the benchmark index traded near a one-year high as a merger plan spurred a rally in banks.

The BSE Midcap index gained 0.52 per cent and Smallcap index added 0.45 per cent on Friday even as the benchmark Sensex ended at 28,077, down 46.44 points, or 0.17 per cent.

State Bank of India (SBI) rose the most on the benchmark S&P BSE Sensex after the lender approved a merger plan with three of its units and Bharatiya Mahila Bank amid a government push to strengthen the nation's fragmented banking industry. Tata Steel, the best performer on the Sensex this year, advanced for a third day this week. Piramal Enterprises rose to a record.

Overseas funds have been net buyers of Indian shares for 27 days in a row, the longest stretch since 2013, as above-average rainfall after back-to-back droughts improves the outlook on company earnings and global central banks remain supportive of growth. Foreigners bought a net $117 million of local shares on August 16, taking this year's inflows to $5.7 billion, the most in Asia after Taiwan and South Korea.

 

"The increase in foreign inflows is giving Indian equities a chance to catch up with global peers," said Kaushik Dani, a fund manager at Karvy Stock Broking in Mumbai. "It is simply the strong money flow that's providing a buffer to the markets."

SBI gained 4.1 per cent, on course for its highest close since August 2015. State Bank of Travancore rallied 5.5 per cent, while State Bank of Bikaner & Jaipur rose 1.7 per cent.

Prime Minister Narendra Modi's government had in June given SBI the nod to start talks to acquire the assets of its subsidiaries and Bharatiya Mahila Bank. SBI, which accounted for about a fifth of India's outstanding loans as of June 30, has more than 16,700 outlets in the country.

The Sensex has rallied 22 per cent from a bear market reached in February. The stock gauge is valued at 16.3 times projected 12-month earnings, near the highest since April 2015. The MSCI Emerging Markets Index is valued at a multiple of 11.5.