The Hindu Business Line : Behind the rally

The editorial “Remarkable rally” (Business Line, September 20) rightly assessed the performance of stock markets globally. Especially, the conclusion that “volatility is here to stay, and the markets are not for the faint-hearted or for those entering with borrowed money”.

Much water has flowed under the bridge since the near collapse of the stock-market in the early 1990s, when shrewd operators called the shots. Investors have now become highly sophisticated and are well-informed of the complexities of share-trading and the number of retail investors doing business had also risen manifold, not to speak of foreign institutional investors.

This has perceptibly added to the recovery of the market after bouts of volatility, which can only be a natural consequence of occurrences such as the US sub-prime crisis. The Indian market has attained maturity, which can be seen from the trend of trading, which reflects the confidence of the corporates and business-houses, besides the country’s economic performance.

But there is room yet for correction of certain aspects of the market’s functioning. These relate to the less-than-satisfactory trading in segments of the listed companies and the valuation of scrips in IPOs, often priced unrealistically.

The editorial is right in its comment that “pivotal Indian stocks are now valued at an earnings multiple close to 22.” Any conventional yardstick would suggest they are over-priced, and, hence some correction is overdue. The authorities concerned are expected to take note of this phenomenon.

T. R. Anandan Coimbatore

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