Indian Stocks Set for Third Week of Gains on Recovery Prospects

India’s stock benchmark rose as investors snapped up shares on prospects of recovery in the domestic economy even as valuations soared.

The S&P BSE Sensex advanced 0.4% to 43,780.90 as of 10:10 a.m. in Mumbai Friday, while the NSE Nifty 50 Index rose by a similar magnitude. Both indexes are set for their third straight week of gains, the longest streak since July, despite falling from a record on Thursday following new measures to curb coronavirus infections in several countries.

As the world’s second-largest virus hotspot, India is seen as more sensitive to vaccine-related developments than other Asian markets, with strategists expecting economic and earnings growth to recover as the pandemic eases. The contraction in the gross domestic product will narrow in the second half of fiscal 2021 before growth swings to 13.1% in fiscal 2022, supported by a raft of structural reforms, according to Bloomberg Economics.

After The World’s Biggest Lockdown, Profits in India Are Rebounding

However, Oxford Economics warned that India will be the worst-affected among the world’s major economies even after the pandemic wanes, with output 12% below pre-virus levels through 2025. And valuations are becoming a concern for equity investors in India, with the Sensex trading at a 12-month price-to-estimated earnings multiple of about 22 times — a record high and more than two standard deviations above its 10-year average.

“Foreign investor inflows are driving up markets but watch out for a correction in the following days,” said Umesh Mehta, head of research at Samco Securities Ltd. “Domestically, there is selling pressure because of high valuations and the need for investors and businesses to manage cashflows and liquidity amid the pandemic.”

Foreign buyers have pumped $5.87 billion into Indian stocks this month, on track for record November inflows, according to data compiled by Bloomberg.

The yield on the 10-year government bond was steady at 5.88%, while the rupee strengthened 0.2% to 74.1675 against the greenback.

The Numbers

  • All but two of the 19 sector sub-indexes compiled by BSE Ltd. advanced, led by a gauge of consumer durables shares
  • Twenty one Sensex shares rose and nine fell
    • HDFC Bank Ltd. was the biggest boost to the index, and gained 1.3%
    • Reliance Industries Ltd. fell the most and lost 1.6%

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    — With assistance by Subhadip Sircar

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