Rally not broad-based; small, mid-cap stocks lagging

Our Bureau

Reaching the peak

Strong earnings

growth, excellent results by domestic companies lifted the Sensex


CNX Nifty gained 0.80 per cent to close at 3769.10

Mumbai, Oct. 30

The BSE-Sensex steered past the 13,000 psychological mark on Monday. Fresh inflow of funds from new global markets like Australia coupled with strong earnings growth reported by domestic companies lifted the Sensex above 13,000 to close at an yet another all-time high of 13,024.26.

Sensex gained 117.45 points or 0.91 per cent on positive investor momentum. Sensex has gained 38.5 per cent beginning January 2006.

More funds

"India is now witnessing fresh inflow of funds from new markets like Australia, Europe, etc. This has led to the buoyancy," said Ms Shahina Mukadam, Head of Research, IDBI Capital Market Services Ltd. FIIs poured in Rs 915.82 crore, as net buyers on Monday lighting up the Sensex rally as per the provisional figures on the NSE.

"Most developed countries like the US and Japan have reached maturity while the India `growth' story is still intact. Also, new money from hedge funds and foreign investors has pushed the market peak to a newer level," said Mr Manish Kanchan, CEO, Ambit Capital.

According to market men, the rally has confirmed the country's position as a strong economy. "India's relative standing among emerging markets has been reaffirmed. Other emerging markets like Brazil and Russia are largely dependent on commodities or the US factor. Whereas, India has been backed by strong domestic growth and continues to remain so irrespective of commodities or US economic slowdown," said Mr S. Mukherjee, MD and CEO, ICICI Securities.

NSE S&P CNX Nifty gained 0.80 per cent to close at 3769.10.

Markets have not seen a broad based rally. There has been participation from only the frontline stocks while mid-cap and small-cap stocks have been lagging. BSE Mid-cap Index gained, ending marginally higher at 26.36 points to close at 5,422.63 points while BSE Small Cap index lost 36.58 points to close at 6,483.80 points. Going forward, most dealers now expect these stocks to post gains.

Rupee gains

Stocks of 1,133 companies gained while 1,406 companies declined. In tandem, the rupee gained against the dollar at Rs 44.97/98.

Dealers contend that the current rally is sustainable. However, a slight correction from these levels is inevitable. "Sensex can gain another 1,000 points by March 2007 amid continued volatility. Though the Sensex valuations of around 20 times look expensive, by year end, markets will discount the FY2008 numbers," said Ms Mukadam. Valuation concerns have receded as compared to the May 2006 period, when the markets were factoring in FY 2007 numbers, said Mr Lalit Thakkar, Director of Research, Angel Broking.

"Going forward, most investors who were left out will now invest. Also, we expect a strong pre-budget rally. India's price earnings ratio of 20 times will also be justified based on its earnings growth and return on equity. The secular trend for markets should continue for another 2-3 years if the current factors hold, " said Mr Kanchan.

Banking and construction stocks gained the most with BSE Bankex being the biggest gainer among sectoral indices, up 1.86 per cent at 6,517.85 points. ICICI Bank Ltd led the gainers, up 3.63 per cent at Rs 785.45. Volumes were decent on the BSE with a turnover of Rs 3,715.86 crore.

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(This article was published in the Business Line print edition dated October 31, 2006)
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