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R.Y. Narayanan

Coimbatore , Feb 6

AS the Sensex made a historic top today, stock market operators reacted cautiously as to where the market is headed in the near term, particularly in view of the fact that the market has `ignored' completely some of the negative developments including the fresh round of verbal joust between the Ambani scions, the rising crude oil prices and the developments in Iran over the nuclear issue.

While one view is that the Sensex may touch 12,000 level before correcting steeply, another view is that the retail investors should not speculate on individual stocks but should take the mutual fund route to spread their risk and lessen the impact of any downward plunge.

Mr D. Balasundaram, Chairman, Coimbatore Capital Ltd and a former President of Coimbatore Stock Exchange told Business Line that the Sensex breaching the 10K mark `makes us uneasy' as the market `ignored' several developments. Referring to the renewed verbal duel between the Ambani brothers, he said `any dispute' between the two brothers would have an impact on the market and their investment plans would take a backseat that the market should not have ignored.

He said the market also seemed to have ignored the high price of crude and the developments concerning Iran over the nuclear issue. He pointed out that Iran was a key supplier of crude to India and there was a danger of the Iran-Pakistan-India gas pipeline project falling through. Though there were no positive developments today, the market moved up.

He said what the budget would hold for the market was also not known and how the Government planned to raise resources to fund the rural employment guarantee programme was important since any steep increase in taxes would hurt the market sentiments.

Asked whether the fundamentals of the economy justified the market exuberance, Mr Balasundaram said even during last year, the economy grew by about 7 per cent but the stock market did not witness such an upturn. He said the P/E ratio of stocks was quite high now and said BHEL was quoting at a P/E of 40 and said "engineering companies could not perform miracles". He said the "feel good factor is growing in excess of what is necessary" and felt that there was an element of `irrational exuberance' in the market now. He advised the retail investors not to speculate on individual stocks but put their money into the mutual funds to spread their risk.

Mr K. Annamalai, Director, DJS Stock and Shares Ltd and another former President of Coimbatore Stock Exchange, described today's landmark as a `milestone' and said that it had defied analysts' expectation that the market would correct today.

He pointed out that the economy has been on a roll as indicated by the Q3 results of many of the companies.

The mutual funds, which came out with new offers, had witnessed sizeable inflow and this money has to be invested in the market.

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