The Hindu Business Line : Benchmarks to sustain rally in near term

Dalal Street is likely to postpone a correction in the two key indices for the time being. This week, the Sensex may open on a tentative note owing to external factors, but end in the positive territory or close to it, thanks to large market makers. The large-cap stocks and select mid-cap counters seem to enjoy strong liquidity support.

Domestic liquidity has lent a sense of buoyancy at a time when other equity markets drifting downwards. The retail investors also appear to have turned to equities with enhanced risk appetite. The end appears to justify the means – higher price seems to attract more demand.

According to conservative investment strategists, this may mark the beginning of the end of the current run. Hold your breath – Dalal Street players are determined to prove the conventional wisdom wrong.

On a buoyant scale

Along with the Sensex, the BSE Mid-Cap, BSE Small-Cap and BSE-500 indices touched their year-high on last Friday.

BSE Small-caps yearly gain on the weekend was stunning 93.06 per cent. The BSE Mid-cap improved 70.35 per cent and its P/E stood at 27.99, a shade below 28.31 of the Sensex. But, the BSE-500 beat the Sensex hands down. Its current P/E is 30 with a 52-week gain 66.62 per cent, against the Dalal Street benchmark’s 49.25 per cent.

But the recent momentum in the small and tiny stocks is not captured in the indices.

According to an internal study done by Angel Broking, in the past one month (till January 4), as many as 1,000 stocks have gained more than 29 per cent. Some in this pack have gained by over 1,000 per cent and one software stock has gone up more than 1,500 per cent!

There are about 5,000-odd listed stocks on the BSE and NSE put together. (The BSE is arguably the world biggest in terms of number of companies listed on it. In terms of turnover, the NSE is roughly 20 times bigger than its nearest rival Euronext.)

Any surveillance?

But, there is hardly any serious monitoring of the price movement and activity in thousands of stocks, which form the bottom of the Indian equity ladder.

Some analysts have already begun questioning the sustainability of the “growth discounting” valuation metrics.

Whether Reliance Power would list more than 4 times its floor offer price or the Federal Open Market Committee meeting on January 30 would cut rates further by 50 basis points appear to dominate the Street’s current mindset. Market is in the mood to ignore negatives. Concept of “correction” sounds like a sacrilege in this euphoric time.

It’s a free market after all. Words of caution in the air are unlikely to make any impact until prices actually melt.

(Responses may be sent to jayanta_mallick@thehindu.co.in)

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