INDIA BUSINESS WORLD - OCTOBER 2006
THE MONTH THAT WAS...

WHO SAID IT'S AN UNLUCKY NUMBER!

  A sense of having been left out, rather than of euphoria, is what one gets on the street as the 30-share Sensex crossed yet another milestone — the psychological 13,000-mark — on Monday. On paper, the index has rallied 47% from its low in June this year. But most brokers will tell you that barring a handful of foreign fund houses and some prominent traders, few investors have been able to capitalise on the rebound, which has been led by a handful of frontline stocks.

   Benchmark stock indices vaulted to new highs on Monday, driven by a heady cocktail of strong corporate earnings, a rapidly growing economy and relatively stable crude oil prices. The Sensex ended at its highest closing level of 13024.26, a gain of 117.45 points or 0.9%. The 50-share Nifty hit a new high of 3776.05, eclipsing the previous record of 3774.15 touched on May 11. It finally settled at 3769.10.

   Marauding bulls defied the weak trend globally, which was sparked off by weak US GDP growth figure, pointing to a slowdown.

   Back home, the mood is upbeat even as some expect that the RBI may raise interest rates by 25 basis points in its mid-term credit policy on Tuesday. Market watchers said sentiment could be affected only if the hike is more than 25 basis points, which is unlikely. Higher interest rates drive up borrowing costs for corporates as well as the retail consumer, who could then cut back on their investments and spending, in turn causing a slack in domestic demand.

   Even as the major indices are moving into newer orbits, the market is sorely lacking in breadth. On Monday also, 1,406 stocks ended lower, compared with 1,133 gainers. The BSE Mid cap index closed at 5,422.63, up 0.49%, while the BSE Small Cap index shed 0.6% to close at 6,483.80. These indices — an indicator of retail interest in the market — are still 11% and 18% away from their alltime highs touched in May. Among frontline shares too, it is a handful of stocks that have made money for investors over the last five and a half months. In the Nifty, 27 out of 50 stocks, including heavyweights like HLL and ONGC, have delivered negative returns since mid-May.

   Market capitalisation on the BSE inched up to Rs 33.80 lakh crore from Rs 33.60 lakh crore on Friday. But it is still lower than Rs 34.35 lakh crore achieved on May 11. But not everyone is worried. “India is a bottom up story now, the companies that are performing are being rewarded by investors,” said S Mukherjee, CEO and MD, ICICI Securities. On the lack of breadth in the market, Mr Mukherjee said, “The fact that only selective stocks are doing well shows the maturity of the market. I would have been worried if each and every stock were rising.”

   Some other players are sceptical of the market sustaining at these levels. Including provisional figures for Monday, foreign funds have net pumped in around Rs 29,000 crore since the beginning of ‘06, of which around Rs 7,000 crore has come in October alone. Merrill Lynch expects the Sensex to slip to 11500 by December ‘07