Indian Stocks Clock Third Week of Gains on Recovery Prospects

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

The S&P BSE Sensex advanced 0.7% to close at 43,882.25, taking its weekly climb to about 1%, while the NSE Nifty 50 Index rose by a similar magnitude. This is the longest streak of weekly gains for both gauges since July, despite them 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.

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 74.1475 against the greenback.

The Numbers

  • All but one of the 19 sector sub-indexes compiled by BSE Ltd. advanced, led by a gauge of telecom shares as Bharti Infratel Ltd. surged 18% following the completion of its merger with Indus Towers Ltd.
  • Twenty three Sensex shares rose and seven fell
    • HDFC Bank Ltd. was the biggest boost to the index, and gained 2.2%
    • Reliance Industries Ltd. fell the most and lost 3.7%

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