Balloons in the bourses

A striking feature of the current stock market rally is that it is broad-based rather than led by blue chip scrips. The overall market senti...

A striking feature of the current stock market rally is that it is broad-based rather than led by blue chip scrips. The overall market sentiment is upbeat, thanks to expectations of good corporate results for the quarter ending September 2003, strengthening industrial recovery and a steady stream of positive economic news. No doubt, the foreign institutional investors are leading the bull run. After having made record purchases in the month of September 2003, their activities have intensified in October as well. This year, net FII inflows have so far topped 3 billion, the level that was last seen in 1996. Of course, the Securities and Exchange Board of India is worried that a significant part of such inflows have come from hedge funds and has sought to bring them under its gaze. But this is unlikely to dampen their enthusiasm for Indian stocks.

What has also helped buoy up the bourses is the general outlook for the Indian economy. The Centre for Monitoring Indian Economy, a well-known economic think-tank, has estimated that it will grow 7.4 per cent this year, thanks to the best monsoon in more than a decade. The expectations of the Union government8217;s chief economic advisor, Ashok Lahiri, are similar. He believes GDP growth this fiscal is likely to be more than 7 per cent, and could touch even 8 per cent.

Incidentally, the broad-based rally is reflected in the declining share of the top 100 stocks in the turnover on the BSE. The share of the top 100 stocks in total turnover on the NSE has also declined. True, the concentration in trading volume is still high at 83.7 per cent and analysts prefer it to be ideally in the neighbourhood of 50 per cent or so. But the larger point is that the ongoing rally is not led by selected blue chips in a thin market. The latter8217;s share has hit a new low as the smart money is chasing a larger pool of scrips. The share of the top 10 scrips in the BSE thus has fallen to 40.5 per cent as against 64.33 per cent in April 2003. The broad-based rally is also reflected in the rising number of companies being traded on the bourses. Between April to August 2003, the share of listed scrips that changed hands has also risen. All of these reinforce a virtuous uptrend in the stock markets.