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Thursday, Dec 16, 2004

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FII flows keep the market afire

Our Bureau

Mumbai , Dec. 15

THE Sensex and the Nifty breached all records today to close at their all-time high levels. In a pre-Christmas party of sorts, foreign institutional investors are pumping in never-before sums of money into Indian equities, helping the indices in their northward run.

Trading started on a robust note at both the exchanges with the indices staying in the green all day. Sensex touched a high of 6423.27 today, notching up 76.76 points to close at 6402.29, a gain of 1.21 per cent. This is the first time the index has breached the 6,400-level.

Brokers said that the more significant thing about the Sensex movement today is that it showed strong resistance level at 6,410 level. This means that there is room for the market to move further upwards.

The Nifty, which had closed above 2000 for the first time on Tuesday , moved further up during Wednesday's trade. It touched an all-time high of 2,034.35, and closed the day with an overall gain of 21.9 points to close at a robust 2,028.70 level.

This revelry at the bourses is mostly being financed by foreign institutional investors. This is apparent from the fact that the indices blazed these trails on a day the market breadth was fairly negative. Buying was concentrated on well researched blue chips, a strong indicator of FII buying pattern, said traders. FIIs are net investors to the tune of Rs 4,291.8 crore in the first fortnight of this month.

"The current momentum in the market is all about funds flow. Foreign investors have become more and more comfortable with the Indian markets, especially post the decision of CalPERS to invest in India. There could be a slow down in the market from the end of next week when FIIs will go on their holidays," said Mr Andrew Holland, Executive Vice-President, DSP Merrill Lynch.

More FII money is being routed into emerging markets because of the weakening of the dollar in the currency market. Within the emerging markets' basket, India is one of the more attractive options because of the robust growth of the economy over the last several quarters, he said.

The valuations of the Indian market are now creeping towards the high side. Though among emerging markets, Indonesia is the most expensive market currently, the Indian market's valuation is certainly at the top end, said the spokesperson of another FII. "The fundamentals of the Indian market do not justify the current levels. It is only a question of investing FII liquidity now," he said.

Market participants are divided over justifications of current valuations of most scrips. A section of the market is of the view that only a few companies have propelled the overall earnings sentiment. Part of the market also feels that there are scrips that continue to be undervalued.

"Even though there are fewer and fewer of these, companies that are quoting price earnings of 7-9 are still available," said the chief information officer of a mutual fund house.

Retail participants are in the rally, albeit selectively. Mutual funds have not been able to support the current rally as they are facing severe redemption pressure with investors booking profits while the market is high.

"We are advising caution at these levels and asking our investors to maintain 20 per cent cash levels. It is also advisable to stick to A group stocks. On the bright side, the Indian story has long-term potential, our weightage in the MSCI Index is also expected to move up shortly," said Mr Amitabh Chakroborty, Vice-President & Head Research, Kotak Securities.

Traders anticipate continued FII domination at least for the next 5-7 trading sessions. "There would be alternate highs and corrections, with buyers looking for entry points," said a broker.

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