FM cautions as Sensex soars past 7,400

Chidambaram advised small investors against showing any exuberance in the market. In an interview to The Indian Express last week, the Finance Minister had cautioned investors against entering the market blindly.

With the market scaling a new peak, investors’ wealth — market capitalisation — shot up by Rs 27,000 crore to Rs 19,36,000 crore. At this level, the market cap has showed a rise of Rs 9 lakh crore in the last one year.

A host of factors from revaluation of Chinese currency yuan, reports of strong monsoon and further drop in global crude oil prices prompted buyers to step up purchases. As a result, stocks like Reliance Industries, ACC, Bharti Tele-Ventures (BTL), BHEL and Cipla all scaled lifetime highs and Satyam Computer surged to a 52-week high.

“Foreign funds and domestic operators are pumping in money. There’s too much money chasing few good shares. Small investors need to be careful. They should not blindly follow FIIs and purchase at high levels,” said a stock dealer.

The market got a shot in the arm by China’s move to revalue yuan by 2.1%. Good monsoon in several parts of the country also boosted the prospects for a better growth in the farm sector.

Huge FII buying has been the major driver of Indian bourses for the past few months. FIIs are betting on good corporate earnings in the Indian economy which is expected to grow 7%. Economy grew at an average 7.7% in the past two years. Corporate earnings for the latest quarter were also better than expectations.

FII inflow in July 2005 (till July 21, 2005) has totaled Rs 5,586.90 crore. FIIs purchased shares worth Rs 5,328.60 crore in June 2005. A major chunk of FII money is coming in as participatory notes. “There’s a massive abuse of the PN route. Sebi should ask FIIs to be more transparent,” said Investors Grievances Forum president Kirit Somaiya.

Textile shares were in demand today on the reckoning that India’s exports to US and UK would rise after China revalued the yuan by 2.1% on Thursday. With NTC’s mills in Mumbai fetching huge price in the latest bidding, shares of real estate developer Mahindra Gesco Developers and Bombay Dyeing — sitting on huge real estate in Mumbai — spurted. FMCG stocks and select auto pivotals edged higher on reports of good monsoon rains so far. PSU shares surged.

Index heavyweight Reliance Industries gained 1.5% to Rs 689 even as it said the company’s board would mull closing share buy-back programme. ONGC gained 1.9% to Rs 936 on media reports that the company will join hands with the Mittal group, which runs the world’s top steel maker Mittal Steel, to invest in foreign energy projects.