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SENSEX 20K: Will the sight blink?

Politics, Macro- Economics, good earnings reports and a few positive corporate
developments took the Indian stock market to yet another high. The Sensex was powered, especially by energy, metals and banking stocks, in its 639 points (3.47 per cent) climb to reach a record close of 19,058.67.

The Sensex has now gained 3,000 points in just over four weeks. Retail investors have been either on the sidelines or booking profits during the last 2,000-point rally even as foreign institutional investors (FIIs) continued to be net buyers, pouring in over $7 billion since September 18. Buy at whatever prices stocks are available, brokers are telling retail clients. But some brokers caution investors to develop a long-term focus.

A research study released by ING Investment said most participants from the 13 Asia-Pacific countries where they conducted a survey believed the investment climate would continue to be positive, though they did not expect their return on investment to be as strong as the previous three months. But 83 per cent of the respondents in China and 75 per cent in India said return on investments in the next three months would be as strong as the previous three.

The survey findings suggest a possible correlation between investors’ level of sophistication and their confidence in the market. While investors in more mature economies such as Australia, Hong Kong, Japan and Singapore are seen to be more conservative in their outlook; those in India and China, on the contrary, are extremely optimistic, possibly due to their short investing history.

Brokerages reported some amount of profit booking by individuals but mutual fund houses said inflows there was no rush for redemptions. In this frenzied atmosphere stock recommendations and market outlook are flowing in through mobile text messages. While the Securities and Exchange Board of India might have come up with strict rules for investment advisors, there are several SMS messages people get from, to whom the former do not know.

 The rupee ended stronger at 39.30/31 a dollar on strong capital inflows into the equity market amid dollar buying by state-owned banks at the behest of the Reserve bank of India. In restricted activity at the Interbank Foreign Exchange market, the local currency was trapped in a small range of 39.29 and 39.37 after resuming steady at 39.34/36 a dollar from last weeks dip which was a close of 39.35/36 a dollar. The central bank has been buying greenback for the past few days to prevent the domestic currency from appreciating further against the greenback.

Meanwhile, traders said the medium-term outlook for the currency is bullish and it will touch 39 levels in the near future following sustained portfolio inflows.

The 30-share sensitive index posted one of its biggest gains on a single day in terms of number of points. It took only four days for the Sensex to reach 19,000 from 18,000 but those numbers should not surprise pundits - because in percentage terms, that is only about 5.5 per cent. Normally, a one or two per cent movement in the stock index on a single day should make little news. A four-day journey for a 5.5 per cent rise is in order. On Friday, Oct 19, 2007 a 300-point fall in the index showed that a large three-digit movement in the index is no longer really rare, either way.