The Telegraph
Since 1st March, 1999
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Sensex soars, mandarins on alert

Mumbai/New Delhi, Aug. 11: The sensex surged to an all-time closing high of 7816.51 points today, prompting shoguns in the finance ministry to keep a beady-eyed vigil on the increasingly skittish market.

The phenomenal bull run this year ' which has seen the sensex spurt 17 per cent from the January 3 close of 6679.20 ' has been sparked by global hedge funds that have funnelled cash into the Indian markets at a time when they have been giving the best returns among the emerging markets behind China, Korea and Malaysia.

But the hedge funds ' which include the ultra cautious Japanese funds ' are betting that India will eventually give the best returns.

Like other global markets, the Indian bourses seem to have ignored the runaway rise in oil prices that snaked up to $65 a barrel. In just two days, the sensex has gained over 220.94 points.

“The market rally is a continuation of the liquid flows into the country,” said Dhiraj Sachdev of ASK Raymond James Securities, a prominent portfolio manager with a corpus of over Rs 1200 crore. “The India story is spreading across the financial capitals in the world and they believe that this time the growth is sustainable and secular,” said an FII fund manager who did not wish to be named.

The market surge has been fuelled by the better-than-expected monsoon rains and forecasts that India will end the fiscal with a GDP growth over 7.5 per cent. Overseas investors have pumped in over $7.3 billion into bourses in the first seven months of this year. In 2004, the inflows had touched $8.5 billion and there’s a strong possibility that FII inflows could touch a new watermark this year.

The gush of dollars has troubled the mandarins in North Block who are keeping close tabs on both the stock and the currency markets.

“The bull run this year is quite different from the ones we saw in 1991 and 1999. It is certainly not one big rush to buy but rather a sustained push by optimistic investors. It is only prudent that we should maintain a watch on the bourses,” said a North Block official.

“Oil is the only worry that could trip up the markets,” says Sachdev. But on Thursday, the Asian markets were not terribly worried about rising oil prices with the Japanese Nikkei rocketing up by 165.24 points, Hong Kong’s Hang Seng by 98.79 points and South Korea’s Kospi putting on another 18.91 points.

The star performers on the Indian bourses were consumer goods giant Hindustan Lever, which zoomed by Rs 7.55 to Rs 169.30 after two block deals of 75.02 lakh shares on the BSE and 46 lakh shares on the NSE, which changed hands at Rs 160.55 per share. The aggregate value of the two deals was put at Rs 195.70 crore. Colgate moved on the announcement that its Singapore arm would pick up a 12 per cent stake in Colgate India from the parent company.

“The senseless sensex has gone mad,” CPI leader Gurudas Dasgupta said in Parliament earlier this week, aghast that it hadn’t even been tripped up by the devastating deluge in Mumbai last fortnight.

Finance minister P. Chidambaram had quietened him down with the soothing logic that the Indian market was among the best regulated, but North Block has already placed its wardens on alert.

The problem is that the sustained inflow into local stocks from overseas funds has strengthened the rupee which is now trading at around 43.50 or so. The hardening of the rupee is expected to continue with the bull run showing no signs of faltering.

“This brings its own share of problems for us. The exporter lobby has been demanding intervention by the Reserve Bank to stop the rise of the rupee. The RBI will do so only when it feels that the rise is too sharp,” officials said.

The country's imports rose 30 per cent in June to $11.1 billion, widening the trade gap to $3.99 billion, from $2.5 billion a year earlier. Any further widening of the gap would be unacceptable to the government, which wants to encourage what it considers more “stable” flows ' export earnings and foreign direct investment (FDI) ' as opposed to less stable flows like FII investments.

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