The Telegraph
Since 1st March, 1999
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Last Week

The rally keeps rolling on, the sensex going up 84 points last week, bringing smiles to those who have had intense faith in large Indian companies. The sensex is just a shade below 3600 now, a level it has reached after 18 months. I had said last week that that we were due for a reversal next week but that didn’t come.

Monday and Tuesday’s weakness gave way to a solid rally from Wednesday onwards. My contention was that the market corrects significantly after 8-10 weeks of rise. This has always been the pattern — it was so even in the early phase of the memorable 1999 rally.

It has not yet happened this time and we have just completed ninth week of rise. The rise has been spectacular, fooling skeptics and fence-sitters (like yours truly). I have often said that stocks like State Bank and Telco were undervalued and I had suggested that there was gross under valuation in steel stocks last year when these stocks were going abegging.

Buying has come into these stocks now but I would never have guessed that Satyam would claw back from Rs 140 to pierce 190 or Infosys get close to 3400 after its disastrous guidance on its business outlook.

There are no signs of turnaround in the billing rates for software companies, the US economy has hardly recovered and the rupee has been rising. And yet these stocks have gone up 20-25 per cent from their lows, as much as the market indices. These are signs that buying has been a bit indiscriminate.

With the benefit of hindsight, the reason we are witnessing such a ferocious rally is that a rare combination of positive stories have all appeared in the same time window. The global markets are up and that has prevented software stocks from falling, the turnaround of key stocks like Telco, rise in commodity prices (Tisco, oil companies), takeover hopes in cement (Grasim, L&T), policy changes and earnings growth of banks, renewed hope for privatisation after the Maruti success and expectations of strong domestic growth due to better monsoon (Mahindra, HLL etc.) have all happened at the same time. It was a rare confluence of many significant events.

The point to watch from now on is how the market reacts to a change in any of these events, especially after the foreigners, who are in an incredible buying mood now, start to slow down.

I am again tempted to say that the first serious test for the bulls is probably likely this week. By mid-July, the results of software companies will be another issue to deal with.

Movement of Indices

       Sensex       BSE 200       BSE 500       S&P CNX Nifty       S&P CNX 500

One year ago       3217.15       390.07       1172.79       1048.55       766.50

One month ago       3081.94       392.65       1191.06       976.85       778.60

One week ago       3499.50       441.79       1337.04       1100.25       872.80

June 23       3461.38       435.32       1319.39       1089.20       861.80

June 24       3447.45       435.96       1322.25       1085.35       862.95

June 25       3517.27       442.84       1343.59       1106.65       877.00

June 26       3552.40       444.58       1349.00       1116.35       880.00

June 27       3583.06       449.05       1362.66       1125.55       888.15

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