Mumbai: Indian gauges of mid- and small-cap shares extended gains to records as a merger plan spurred a rally in banks.

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 Ltd amid a government push to strengthen the nation’s fragmented banking industry. Tata Steel Ltd, the best performer on the Sensex this year, advanced for a third day this week. Piramal Enterprises Ltd rose to a record.

The Sensex closed 0.17%, or 46.44 points, lower at 28,077, while the Nifty 50 lost 0.07%, or 6.35 points, to close down at 8,666.90.

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 16 August, 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 Ltd in Mumbai. “It is simply the strong money flow that’s providing a buffer to the markets. "

SBI gained 4.15%, State Bank of Travancore rallied 6.17%, while State Bank of Bikaner and Jaipur rose 1.47%.

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 30 June, has more than 16,700 outlets in the country.

The Sensex has rallied 22% 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. Bloomberg

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