The Split Personality of India's Stock Market – MoneyBeat – WSJ

The Split Personality of India's Stock Market – MoneyBeat – WSJ

By Gurdev Singh Virk

A recent bull run in India’s benchmark stock index isn’t being mirrored in the midcap index, which tracks the country’s midsize companies.

A bronze bull statue at the Bombay Stock Exchange.
Bloomberg News

While the Bombay Stock Exchange’s S&P BSE 30-stock Sensitive Index, or Sensex, has risen 9% so far this year and is hovering near its all-time high, the BSE Mid-Cap Index is in negative territory. The index, which comprises 223 companies, is down 7% and is 35% away from the record high hit in early 2008.

Analysts attribute the indexes’ divergent fortunes partly to foreign investors’ different attitudes toward India’s large companies and their smaller peers.

Foreign investors have been piling into large Indian companies in recent months, as high liquidity means they can exit their investments quickly. Their $8.3 billion investment into Indian stocks since early September has pushed the Sensex higher in recent months.

However, foreign investors have mostly steered clear of midcap companies, which have lower trading volumes. Also, profits of smaller companies have been hit harder than larger companies, as the economic downturn in India has kept their share prices depressed.

“Midcap companies remain out of favor,” said Kishor Ostwal, chairman at Mumbai-based CNI Research Ltd.

India’s retail investors have become wary of equities following a poor run in midcap stocks in recent years. They had bought stocks of small and medium-sized companies in 2005 and 2008, when the market was booming. But the majority of those stocks are now trading way below their peak.

“The fear of capital loss in equity investment is still looming large, particularly, when other investment opportunities such as real estate and gold provide safety on capital along with some returns,” said R.K. Gupta, managing director at New Delhi-based Taurus Asset Management Co., which manages around $440 million in assets.

Richard Chauri, a 39-year-old Mumbai resident who runs a garment shop in the northern suburb of Thane, said he has lost interest in the stock market after suffering steep losses in midcap shares.

Mr. Chauri invested about 90,000 rupees ($1455) in medical equipment-maker Opto Circuits (India) Ltd. and GVK Power & Infrastructure Ltd, which are constituents of the BSE Mid-Cap Index.

Mr. Chauri says his portfolio is now valued at just 50,000 rupees, and he now puts most of his savings in bank term deposits and gold funds.

Analysts say that the weak run for midcap stocks could continue until there are clear signs that India’s economy is picking up.

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The Split Personality of India's Stock Market – MoneyBeat – WSJ

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