Mumbai, Dec. 31
FOR the second year in a row, the stock market ended on a bullish note on New Year's eve, with the BSE Sensex crossing another milestone of 6600 today, and creating the psychological hope that the coming year would also be bullish.
The undertone of the market remained bullish, with an 80-point rise of the BSE Sensex, which closed at 6602.69, and a 20.7-point gain for the S&P CNX Nifty which closed at 2080.50.
Looking back at 2004, the upward move maintained from January was halted for some time in May, but the heavy inflows from FIIs kept the undertone bullish for the larger part of the year. FIIs pumped $8.51 billion (Rs 38,965 crore) into the equity market during the year compared to $6.59 billion (Rs 30,458 crore) during the previous year.
Even large-sized IPOs of the size of over Rs 4,500 crore hit the primary market for the first time ever, validating the existence of a huge appetite for big issues, with most of them providing good returns on listing too.
Even though the benchmark indices did not gain much in 2004, the most distinctive feature during the year was the attraction that mid-cap and small cap stocks held for investors, mainly due to the lowering of short-term capital gains tax and introduction of zero long term capital gains tax.
Market players remain optimistic about 2005 as well, with their next target being the 7,000 mark for the Sensex. Even though this mark is 400 points away, the view among the brokers is that this target may be breached even before the next Union Budget, which is usually held in the last week of February.
This time too expectations of FII inflow are high, with market players estimating FII investments in the region of $12 billion to $13 billion for 2005.
But several brokers who said they maintain their cautious approach for 2005 cited stock valuations overstretching fundamentals. Their main concern is that international oil prices are higher than seen a year ago, which could slow down industrial activity. Moreover, the expectations for the coming year are running very high; these expectations are of huge FIIs inflows, and of tax and financial sector reforms. If any of these does not materialise, these cautious brokers say, the slide in stock prices would be sharp.