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Up, up and away

Aravamuthan Sasikant

India’s stock markets have acquired a new momentum. The two premier indices -- the Sensex of the Bombay Stock Exchange and the S&P CNX Nifty of the National Stock Exchange – have ended at all-time closing highs for the second consecutive day today. Unlike yesterday when early gains were pared towards close, the indices ended near the day's highs.

The Sensex at 5782 was up 2.3 per cent; the Nifty at 1712 was up 1.78 per cent. The rally is driven by a double-head: speculation and real investment. Foreign institutional investors have been buying all through February. In the first nine days of the month, FII investments (equity plus debt instruments) stood at Rs 8.79 billion ($177.6 million). From January 1, 2000 till date, FII inflows stand at Rs 10.76 billion ($247.1 million). In other words, February contrasts with January ( Rs 1.97 billion) in terms of FII inflows. In calendar 1999, they pumped in Rs 66.96 billion ($1.56 billion) in the Indian markets.

Dealers say the small investor has returned in a big way but with a different strategy. A trader at a Bombay brokerage says, "Information is easily available on what fund managers are buying. Many retail investors ride piggyback on them which results in a further push in stock prices."

While the 1999 rally was driven primarily by the "golden triangle" of information technology, fast moving consumer goods and pharmaceuticals sectors, the current rally has seen an improvement in stocks across-the-board.

Infotech stocks have definitely gone up, but other sectors have also appreciated. Among the Sensex heavyweights, ITC, Reliance and MTNL have led the rally. ITC has gone up from Rs 665 on December 30, 1999 to Rs 896.90 today. In the same period, Reliance rose from Rs 233 to Rs 365, ICICI is up from Rs 92 to Rs 155 and MTNL has surged from Rs 193 to Rs 351. Infosys was at Rs 7,258 in December 1999 and ended today at Rs 9,200.

Other sectors of the economy are also driving the rally. "The government has taken positive steps like relaxing foreign direct investment norms and the reduction in small savings rate. If the government spends on infrastructure, then the targeted GDP growth rate of 8 per cent can be achieved," says stockbroker K R Choksey.

The prospect of a further drop in interest rates has helped the market to retain the bullish sentiment in spite of the finance minister's warning of a tough budget, say analysts.

The markets will remain volatile as outstanding positions are high, but a correction in the short-term is within the realm of possibility, they add. “A correction would be healthy for the sustenance of the long-term bull market,” says a stockbroker.

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