Oye, oye, Bubblee, watch out

But the same week also saw Cipla rise 8.7 per cent, and Tata Steel and Hindalco by more than 6 per cent. And while Hero Honda rose 5.5 per cent, even the laggard Hindustan Lever managed an impressive 4.5 per cent increase. Walk beyond the Sensex companies into the mid-cap realm — Financial Technologies, Rolta and Cranes Software are up more than 10 per cent. Go lower into the highly-volatile small caps and the picture is frightening:

Assam Co is up 81 per cent, Andhra Pradesh Paper Mills 63 per cent, GHCL 24 per cent, Amara Raja Batteries 20 per cent — the list is long.

Question: how can a patch-up affecting one group, how ever big it may be, throw so many other companies into the stratosphere? So abruptly? Will, as the confident suits in the financial sector claim, the Sensex now touch 8,000? Will it, as one humungous networth individual claims, cross 25,000 in five years? Where are all these numbers coming from? Should we believe them when the grimy underbelly of the same sector has a rumour doing the rounds, whose essence is that the Sensex will touch 7,200 or even 7,400 and then crash to, and stabilise around, the 6,400-6,600 range?

Irrational exuberance? This now-popular phrase was first coined in a December 5, 1996 dinner speech by Alan Greenspan, chairman, Federal Reserve Board. In 2000, Robert J. Shiller, a professor of economics at Yale, wrote a book by that name where, following the Internet bubble of the mid to late 1990s, in which he prophesied that obsession with stocks was turning the financial system into a casino. And how ever strong the fundamentals of our economy, sectors and companies, the current rally is displaying strong signs of this irrationality.

A disturbing sense of deja vu grips me as I wrestle with these numbers, trying to thrash sense out of them. I remember doing a similar exercise in March 1992, when the Sensex touched 4,000 for the first time — a professor wrote a paper saying it was all set to cross 10,000. It fell soon after and lay comatose for quite long.

Today, at Sensex 7,000, the same questions are being asked, the same answers being provided. But while common people are asking the questions out of concern for their investments, the people answering them, experts so to speak — stock brokers, fund managers, analysts, researchers and their ilk — are answering them out of concern for their jobs. Their answer to where the Sensex is headed, therefore: up, up and away. And almost like a self-fulfilling cycle, the higher the Sensex goes, the greater the confidence in it going higher.

Watch out!

Tailpiece. The World Wealth Report 2005 — ninth so far — notes that there are about 70,000 HNI in India, up 14.6 per cent from the previous year’s 61,000. Researched by Merrill Lynch and Capgemini, HNIs have been defined as people whose financial assets add up to $1 million (about Rs 4.3 crore) or more. Taken together, the 8.3 million HNIs across the world saw their exposure to equities rise from 20 per cent in 2002 to 35 per cent the next year and 34 per cent in 2004. That should have added a lot of spring to Indian HNIs’ wealth. The losers: cash/deposit and fixed income, which saw a drastic fall from 55 per cent in 2002 to 39 per cent in 2004, and real estate which is down 4 percentage points to 13 per cent.