The Bombay Stock Exchange (right) is seen behind the Bombay High Court building in Mumbai. The S&P BSE Mid-Small-Cap Index increased 0.6% to the highest level since October 20 even as the S&P BSE Sensex ended little changed at a three-week high yesterday.


India’s small- and medium-sized companies climbed to a five-week high after the central bank signalled it could ease monetary policy further even as it maintained interest rates yesterday.
Jindal Steel & Power rallied to more than a five-month high, while JSW Steel climbed to its highest close in 10 weeks. UPL, the largest manufacturer of agrochemicals, jumped the most in three weeks, while power generators Neyveli Lignite Corp and Torrent Power gained at least 3.4%. Bajaj Finserv, the nation’s top financial-services company by market value, rallied to a three-month high.
The S&P BSE MidSmallCap Index increased 0.6% to the highest level since October 20 even as the S&P BSE Sensex ended little changed at a three-week high. With Reserve Bank of India Governor Raghuram Rajan holding the key rate after four cuts this year, a move predicted by all 47 economists in a Bloomberg survey, investor attention shifted back to buying stocks that benefit from policy measures aimed at boosting growth, according to Karvy Stock Broking
“Infrastructure clearances are coming, construction activity is picking up, FDI norms have been eased, and stocks that benefit from it may be outside the larger indexes,” Kaushik Dani, a fund manager at Karvy, said by telephone from Mumbai. “The RBI policy was on expected lines.” Dani said he’s bullish on stocks related to urban consumption, including automakers and financial-services companies.
India’s economy grew 7.4% in the three months through September – topping estimates – and is set to outpace a slowing China this year as Prime Minister Narendra Modi boosts infrastructure spending, official data showed after the market hours on Monday. The Sensex climbed for two straight weeks through Friday after the government eased foreign investment rules in 15 industries and amid optimism Modi will push through the parliament a bill for a unified sales tax.
Among Sensex stocks, Tata Steel rose to a one-month high. Vedanta surged the most since October, while Hindalco Industries gained to a two-week high after global metal prices climbed. The stocks were among the best performers on the benchmark. Coal India, extended last month’s 3.3% advance.
Rajan, who took advantage of a commodity slump to slash one of Asia’s highest borrowing costs, now has to contend with rising food prices that are fanning inflationary pressures. Consumer-price gains accelerated to 5% in October, led by a surge in food items such as lentils, matching Rajan’s target for March 2017.
An anticipated increase in US interest rates this month also risks triggering capital outflows. Foreign funds sold$1.1bn of local stocks in November, the most since August, data compiled by Bloomberg show.
“The Reserve Bank will use the space for further accommodation, when available, while keeping the economy anchored to the projected disinflation path that should take inflation down to 5% by March 2017,” Rajan said.
The Sensex has fallen 4.8% this year and trades at 15.5 times projected 12-month earnings. The MSCI Emerging Markets Index is valued at a multiple of 11.
Meanwhile the rupee strengthened 0.3% to 66.4950 a dollar, according to prices from local banks compiled by Bloomberg. The currency weakened 2.1% last month in Asia’s worst performance.
India’s sovereign bonds rallied the most in two months after central bank Governor Raghuram Rajan said monetary policy remains accommodative even as he left benchmark interest rates unchanged at a meeting yesterday.
The yield on government notes due May 2025 dropped seven basis points to 7.72% in Mumbai, its steepest decline since September 30, prices from the central bank’s trading system show. It climbed 25 basis points over October and November, the biggest two-month jump for a benchmark 10-year security since September 2013.