The Hindu Business Line : Sensex takes a knock, swings 200 points in volatile trading

PROFESSIONAL fund managers and equity analysts have begun to advise caution now that stock indices have risen out of their deep troughs to all-time highs. The small-scale investor, however, appears to have begun punting in right earnest at the peak of this 10-month old rally.

"Suddenly, there is a crowd outside my office early in the morning. After the Sensex crossed 6,000, the (retail investors) bunch has swelled. We have had to ask for extra chairs and benches!" said Mr Arun Kejriwal of KRIS Research.

However, with the gains come the pains too. Several investors have been trapped in some "star stocks" as, after an initial rally, many stocks lost heavily.

For example, on Monday, several retail investors were caught in the stock of Indraprastha Gas Ltd at high levels and the price plummeted to close 7 per cent lower. Those who bought the stock were not able to get out on Tuesday also as the counter, along with the market in general, remained depressed.

After a strong opening, the Sensex rose to 6121.20 by mid-day trade. However, from that level it plummeted to a low of 5916.33, before improving to close at 5943.64. While seasoned investors welcomed the drop saying it was a much-awaited correction as valuations were becoming stretched, many small punters lost money trying to make a quick buck.

A clear indication of small investors, especially "retail speculators", having come back to the market was the number of trades.

The total number of trades on the BSE on Monday stood at over 12 lakh, and crossed 20 lakh on the NSE — an all-time record.

Mr Sapan Patel, a BSE broker who does only retail business, said, "After last week's peak, there has been a surge in the number of retail clients who want to invest in stocks. Now that the market has entered a bull phase, many of them do not even see reason when investing."

All the punting has also put the rumour mills in overdrive. "Rumours are spreading like wild fire. A stock tip reaches hundreds of people within minutes," said a dealer, who has advised all his clients to sit tight for a couple of days and let the muddle clear.

For example, when the Government called for expression of interest for selling its equity stake in RCF, news spread that the "open offer would come at around Rs 80-90."

While the price range appeared out of the blue, there was a mad scramble for not only RCF shares, but all fertiliser companies' shares.

A member of an informal group of high net worth investors told Business Line that the group had cashed out last week when the indices crossed 6,000. "We are waiting to see which way the market moves. We would start buying if the market moves a couple of hundred points in either direction," he said.

Meanwhile, the cautious ones have opted for Monthly Income Plans, which invest up to 20 per cent in equities, run by mutual funds.

The recently launched MIP of HDFC MF has reportedly collected close to Rs 1,000 crore. Reliance Mutual Fund has got subscriptions of a little over Rs 500 crore, reports say.

Similarly, UTI's Master Value Plan, an open-end fund that invests predominantly in mid-cap stocks, recently collected Rs 500 crore.

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