The Telegraph
Since 1st March, 1999
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Magic moment in sensex ascent
- Select stocks join the party

Mumbai, July 6: The sensex continues its inexorable run and scales new peaks. Seven months after it went past Point 14000, the bellwether index rapelled up to 15000 — but then slid off the perch and remained tantalisingly short of that historic level.

The climb to another dizzy peak began around noon after a pretty skittish start to the day’s trading. After opening at 14843.43, it hit a high of 15007.22 as software stocks started to sizzle just before the start of another earnings season. The index, however, failed to sustain the level and ended the day off the record highs at 14964.12, a net gain of 102.23 points or 0.69 per cent over yesterday's close of 14861.89.

The new peak was scaled after seven months and 144 trading sessions and reflected the growing confidence that local and overseas investors have in the Indian growth story with worries about inflation and interest rates starting to recede.

But there are a couple of things that are odd about this rally: first, it isn’t broad-based enough with only half of the index constituents rallying since it scaled 14000 last December. The other 15 stocks have actually dipped since then and have under-performed the sensex.

Second, it isn’t usual to see the index rally bang in the middle of a monsoon when business is usually slow. In fact, the market tends to dip in May and then start to rally in early September before the festive season begins. The last time that the market rallied during a monsoon was more than two years ago when the sensex scaled 7000 on June 20, 2005.

This is also the longest interval between two peaks — all of seven months. Barring the transit from 12000-13000 which took a period of six months, most of the other 1000-point rallies have taken between one and three months. Analysts said this rally was built on strong liquidity flows.

“Globally, the asset allocation is changing. It is moving from developed markets to Asian markets, excluding Japan. India is one of the major beneficiaries,” said Dhiraj Sachdev, vice-president of HSBC Asset Management.

Brokers say the strong growth of the Indian economy and comfortable inflation number, which has lowered the threat of interest rate hikes, are the major factors that have attracted investors even though there have been some worries about the high valuations of Indian stocks.

“It’s not the time that one should uncork the bottle of champagne. If we analyse, it can be seen that the rally this time around is not broad-based. Only a few stocks have gained and many have been laggards,” said V.K. Sharma, head of research at Anagram Stock Broking.

Brokers say while Reliance Industries, the State Bank of India, Larsen & Toubro, Bharti Airtel and ICICI Bank have appreciated in the current 1000-point rally, many others like Infosys, Tata Consultancy Services and ITC have seen their stocks wilt.

With the results season kicking off next week, it’s clear that the stream of numbers will decide which way the sensex will head in the days ahead.

Infosys is set to announce its first-quarter results on July 11 and brokers warn that if the Bangalore-based company reports numbers or issues a guidance that is below expectations, there could be a correction.

Given such an outlook, experts say retail investors should take stock specific decisions. “Just because 15,000 has been attained, the investor should not rush in. He must analyst each case individually and then decide whether to invest or not,” Arun Kejriwal, director, Kejriwal Research and Investment Services said.

Sachdev was referring to the continued support lent by FIIs. Figures indicate that the FIIs pumped in more than Rs 7,400 crore into equities in the five days between June 29 and July 5.

Sentiment has turned against the information technology companies like Infosy, Wipro and TCS due to the appreciation of the rupee, which many reckon will crimp their profit margins.

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