The Hindu Business Line : Brief correction may check progress

IT'S springtime on Dalal Street, even if the benchmarks correct a few notches down. The seasons in the capital markets do not necessarily change in tandem with the economic cycle. The lure of the market has its own mystique.

Market mystique: Awe-inspiring heights in key indices have never daunted investors on the Dalal Street. On the contrary, high premiums have attracted more investors to the market.

In the reflected glory of rising indices, the corporates manage to raise capital cheap.

Past disasters notwithstanding, the charm of the heights is intact on the BSE. The retail market is ready to take risk, housewives and taxi drivers alike.

However, the state of the market now is not identical to what was witnessed in earlier booms.

It is no more a blind date with esoteric stocks. Trading perspective may still hold fancy for thousands of odd stocks, but following of a single operator leader is conspicuous by its absence.

Talk to the one on the BSE, you are likely to detect an unpretentious zeal for making money.

Ambiguity remains about timeframe and ability to stomach risk. But "research" is not an anathema, neither is the market gossip, now available in plenty.

At least, this set exudes the confidence of literate adults.

For the macro market moves, this subtle change in retail investors' psyche has a bearing. Measured greed, tempered by caution, reduces chances of panic.

In the current bull run, swings of 100-200 points on the benchmark have become quite regular.

But the domestic market's confidence level seems to have undergone a change. This could be largely due to change in drivers of the market.

In credibility profile, overseas investors have so far been placed higher than the operator-speculator breed.

It is interesting to note that FIIs have just touched the upper fringe of the broad band of mid-cap stocks.

But the broader indices are scaling new highs shadowing the footsteps of the benchmarks.

The domestic investors, who are driving up the stocks outside the benchmark, seem to be prepared to pay a premium higher than they have ever considered.

Desire spiral: At the base of this valuation spiral is the general confidence over the Indian stocks reposed by the overseas investors. In other words, it is the sentiment that is at play rather than the fundamentals or growth discounting.

In such a situation, the "streetcar named desire" cruises merrily along as long as its fuel permits. The leveraged money has started to be poured in.

Sentiment, in the short term, overrides fair valuation. The corrections are seen as opportunities to enter.

This week, the market may see a correction, which is likely to be reversed by fresh flow. Considering the current mood, a major correction appears still some way ahead.

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