Investors reap riches as scrips spurt

Apart from the stability on the political front and formation of the new government, there was hardly any change on the economic front to warrant such a boom. The jump was uniform in A group blue chip shares and B1 group shares of the Bombay Stock Exchange. The 270-point fall in Sensex in the last week has notdemoralised die-hard bulls. This fall has reinforced the belief in a section of the market community that the rally will gather momentum following the much-needed correction.

At 4,322 on April 22, the Sensex had gone up by over 400 points in less than a month. Similarly, the fancied index had risen by 1,150 in the last three months. The sustained rise had given a new vigour to the bull operators, sending bears 8212; who dominated the scene for the last one year 8212; to the sidelines. 8220;Investors who stopped reading the share quotations have once again started showing interest in share prices. Many investors had burnt their fingers in the new issue boom two years ago,8221; said a fund manager, adding, 8220;but I don8217;t know how long it will last.8221;

The number of traded shares has gone up from 1,300 three months ago to 2,450 as on the previous week. Even the business turnover on the exchanges has been going up. After the last week8217;s correction, Sensex is still ruling in the 4,050-4,100 range 4,050.98 on Friday. Thecarry-forward business badla has shot up to Rs 1,300 crore last week from Rs 150 crore in Novmeber last year. What were the reasons for the sudden upsurge? The uncertainty over the formation of the government ended and the new BJP government had welcomed foreign investment and assured continuation of reforms.

Speculators seem to be pushing up the price levels. Foreign institutional investors FIIs, the market movers in the last three years, have already slowed down, pointing towards the overbought position and high prices of blue-chip scrips.Seeing the unbridled rise in shares, domestic institutions have been selling shares to bring sanity into the market of late. 8220;FII buying has slowed down. One can expect hard decisions in the next Union budget. Also the current boom has not benefited retail investors in a big way. There seems to be excessive speculation in the market which is now in an overbought position,8221; says former BSE president Kamal Kabra, cautioning the investors. Software and pharmacompanies have benefited maximum from the bull run. Software companies like Infosys have gone up from Rs 645 to Rs 2458, Satyam from Rs 66 to Rs 553 and Pentafour from Rs 123 to Rs 874 within two or three months. 8220;This is purely due to over speculation. FIIs stopped buying in the last three weeks. In fact, there was a net outflow of FII funds in the last three weeks,8221; said an official with a leading FII. Said a report by Merrill Lynch, a leading foreign investment firm, 8220;While the momentum of the market continues to be strong, we remain cautious given the sharp rise in the market of over 25 per cent, likely disappointments on the earnings front over the next two months and a fall in the rupee.8221; Finance Minister Yashwant Sinha has already indicated about some tough decisions in the budget. The forthcoming credit policy of the Reserve Bank, Union budget and corporate results will dictate the direction of the market.

Pawan Dharnidharka, a leading BSE broker, feels investors should be careful while jumpingonto the speculator band-wagon. Common investors usually always lose out to big-time speculators in bull rallies. By the time retail investors enter the market, speculators will book the profit leading to a stock crash and investors will end up losing their shirt.

If the stock rally is to become genuine, the government will have to increase its spending in infrastructure and corporate performance will have to improve thereby leading to a general turnaround in the economy. Investors would also prefer a genuine bull rally instead of a speculator-driven market.