Back to 20000 but with some caution

The stock markets today kept its anticipated date with a Double Bill that read Sensex: 20000; Nifty: 6,000 — a rare double bubble for local bourses that had caught the chills after recession hit global markets in early 2008.

But Tuesday’s surge didn’t ignite the same euphoria that the markets witnessed in the first fortnight of January 2008 when the bellwether indices sizzled on a heady cocktail of hubris and greed — and a strange nonchalance about global markets that had already started to crater.

Back then, the sensex had surged to an all-time high of 21,206.77 before a precipitous fall within a couple of weeks.

The rally of early 2008 was far more broad-based than it is today. On Tuesday, just one in four stocks listed on the National Stock Exchange closed with gains. On the BSE, it was only a little better: two out of five.

Many of the frontline stocks failed to put on gains, creating some unease among market players. Of the 50 Nifty stocks, 28 had ended in the red. Only 14 of the 30 sensex scrips had closed in positive territory.

It is this statistic that has deepened worries about the sustainability of the rally even as cheery optimists have started predicting that the sensex will top 25,000 in the first half of next year.

The rally has been fuelled by the foreign institutional investors (FIIs) who have funnelled over Rs 75,000 crore into the Indian markets since January. On an average, they have been making a net investment of about Rs 2,000 crore a day.

On Tuesday, the sensex closed 95.45 points higher at 20,001.55 — its best close since January 15, 2008. The Nifty also settled above the psychological peak at 6,009.05, up 28.6 points or 0.48 per cent.

However, analysts do not rule out the possibility of a 5 to 10 per cent correction in the short term.

“The euphoria is only confined to the FIIs,” says Ambareesh Baliga, vice-president at Karvy Stock Broking. “They are buying up everything.”

Baliga says the domestic financial institutions — which were propping up the floundering markets last year —have been taking money off the table and are net sellers now. Some retail investors are not participating in this rally because the bitter memory of the 2008 slump is still fresh in his mind.

He reckons the rally will sustain as long as the FIIs have the appetite for Indian equity, which are yielding the second highest returns among emerging markets after Russia.

“The key question is how much more money the FII is willing to put in. If there is a reversal, then we are headed for a sharp correction,” Baliga added.

But there are others who remain upbeat after the latest rally. P. Phani Sekhar, fund manager at Angel Broking, believes that companies will report strong revenue and profit growth in the quarter ended September 30 and that will provide the ballast if the current rally starts to sputter.

He reckons that investors should consider buying stocks on every dip from here on.

Says KRIS director Arun Kejriwal: “Now that we have crossed the key psychological peaks, let’s just hope that the market consolidates at these levels. It shouldn’t move upwards incessantly.”

Kejriwal agrees with Phani Shekhar that the second quarter results will determine which way the market moves.

D.D. Sharma, vice-president, research, at Anand Rathi Securities, said the FIIs would continue to invest in the local markets as long as there was no major external setback.

The market will be waiting to catch the signals from the US Federal Reserve Board whose policy makers are meeting later today to decide on further stimulus measures for a faltering American economy.

source http://www.telegraphindia.com/1100922/jsp/frontpage/story_12965926.jsp