The Hindu Business Line : No speed-breakers on Dalal Street

The market, which for long was used to betting on the price-earning multiples averaging between five and ten, is now ready to value a stock 20 times or more the earning per share.

IT is as if the domestic stock market has discovered life anew. The psychological barriers appear to be melting away as the indices keep scaling new heights.

With plenty of oxygen (in the form of liquidity flow) and devoid of any vertigo, Dalal Street exudes confidence.

Is it mere euphoria that is driving the momentum play or just the sheer force of liquidity?

Over the hump: In the last few months, FIIs' fund flow not only pushed up the key indices, but the overseas investors also changed the valuation parameters for stocks across-the-board.

The market, which for long was used to betting on the price-earning multiples averaging between five and ten, is now ready to value a stock 20 times or more the earning per share. This marks a shift in perception, strategy and risk management.

The FIIs have been largely determining pricing of the Sensex and the Nifty stocks, and have also been providing broad valuation cues for stocks in the broader indices.

Thus, the growing domestic demand for mid-cap stocks seems to ignore the stretched valuation syndrome as more and more counters hit or reach their all time peaks.

Budget effect: The Union Budget for 2005-06 has held out a reassurance over continuation of economic reforms and promises extending of purchasing power to rural sector.

Interestingly, the Budget signalled redundancy of the social stigma attached to equity investment in this country for being speculative.

Despite the corporate concerns over taxing of fringe benefits, the benchmark indices displayed a strong bull thrust last week. The broader indices, which drew inspiration from the benchmarks, also surged ahead.

This week, there is no apparent reason for a break in the upward trend for the market. There is also a clear sign that money-on-the-sideline is re-entering the ring. The profit taking activity, on the other hand, is unlikely to play spoilsport as players do not seem to be in a hurry.

Though there is some cloud on the political firmament over the issue of Government formation in Jharkhand, which may disturb the proceedings in Parliament, it is likely to throw a spanner in process of passing the Finance Bill.

Market is likely to turn gradually its focus now on to the results of the corporate sector as the financial year draws near. Much of the buoyancy in the market is attributable to the expectation of improved corporate performance in the backdrop of buzz in the industrial activity and steady growth in the service sector.

The strategies for factoring in forward earnings and growth is likely to be chalked out in the coming fortnight.

If one reads the signals right, more aggressive premiums in the new fiscal may not be out of sync in view of global trend in commodities and India's growing clout in manufacturing as also knowledge-based industries.

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