After four years: Sensex gets ready to hit 5,000-level

While in 1999, technology stocks were used to ramp up stocks, this time old economy stocks (especially cement, steel, auto and petrochem) are driving up the market. ‘‘The market cannot go up and up. It’s already in an overbought position,’’ said stock analyst Ravi Pai.

INVESTORS, BEWARE: The 30-share BSE Sensex last week ended with a gain of 162 points, or 3.38%, at 4,930.53, a closing level not seen in the last three-and-a-half years. The NSE S&P CNX Nifty Index rose 46.35 points, or 3.04%, during the week to end at 1,569.45.

‘‘Indian investors are back into the equity markets largely in quest of higher returns; interest rates and bond yields have plunged to life lows,’’ says JM Mutual Fund.

Stocks of top companies shot up by over 100-120 per cent from their 52-week low levels. Reliance has gained by 116 per cent, L&T by 122 per cent, Telco by 184 per cent, Tisco by 183 per cent and Hindalco 134 per cent. ‘‘If the rally has to continue, the market will need more fundamental support. Otherwise the market will crash,’’ says BSE dealer Pawan Dharnidharka.

Brokers privately admit that the high levels cannot be sustained for a long time. Various factors like economic growth, corporate performance and monsoon have already been factored in. ‘‘Moreover, elections in the States and the Centre are expected within six months. There can be political uncertainties in the coming months,’’ they add.

FIIs’ MONEY: Foreign Institutional Investors (FIIs) have played a big role in driving the bull rally by pumping in over $4 billion in 2003 alone. The sharp rise in FII inflows has come amidst allegations that money brought in as FII funds belong to Indians who diverted money abroad.

‘‘We’ve come to the conclusion that there is a serious and urgent need to study the role of FIIs in the current bull run,’’ says Somaiya.

‘‘There is a big rise in speculative trading. FIIs, without taking any risk by way of hedging, have fuelled the present bull run. It is an unusual one-way upward movement… which causes concern,’’ Somaiya says.

FIIs are placing orders in the cash market and squaring up the same in futures and options market. ‘‘Due to the sustained appreciation of the Indian rupee against the US dollar, foreign money is being dumped via FIIs into Indian capital market. FIIs can get guaranteed returns with the help of cash, future & option trading and hedging, and they are pouring in money,’’ the IGF chief said. ‘‘The argument of stock exchanges that there won’t be a payment crisis as the speculative transactions are guaranteed by margin money is far from convincing,’’ Somaiya says.

What’s Sebi doing? Like last time the stock market regulator is watching from the sidelines. But — thanks to the benefit of hindsight — the Sebi is periodically coming out with warnings for investors. Sebi chairman G. N. Bajpai has already cautioned investors to stay away from overheated markets. But this time it’s the big FIIs which are buying shares and taking the Sensex to dizzying heights. Small investors need to just get out if they have already received fair returns, say analysts.