The past two weeks have seen the market regulator, The Securities and Exchange Board of India (Sebi), tighten its grip on the Indian capital market. Unwilling to see a repeat of the last two bull runs occur, the market watchdog is sniffing around for trouble. In its latest move Sebi has warned the Foreign Institutional Investors(FIIs) not to route transactions on behalf of banned entities like overseas corporate bodies (OCBs). Sebi suspects that Indian entities had used the OCB route to nudge up their share prices earlier. Sebi may make it mandatory for FIIs to disclose client information soon. Despite the tight patrolling, the stock markets seem to be on a roll. The week ended with the Sensex hitting 5047.25 points. Not restricted to the index stocks, the rally is broad based with some mid-cap stocks also in a boom situation. Tech shares were also up last week on hopes of an economic recovery in the United States boosting technology spending and lifting the sector's fortunes. The American economy has expanded 8.2 per cent in the third quarter which has upped the outlook for Indian software companies as they earn 70 per cent of their revenues from exports to the United States. The general mood in the market is now optimistic in spite of the recent slowdown in FII inflows. With a series of good IPOs coming, this optimism might continue till mid-December, when the FII honchos take their annual Christmas holidays. You, as the small investor who is already invested in the market, could look at the latest market rally as a point to book profits. If you've made 15 to 30 per cent return this year, consider booking profit, of at least a part of your portfolio. New investors, be careful. The market is at a high and very few market watchers expect the Sensex to shoot up to 6,000 in 2004. Dev Chatterjee Index funds expensive in IndiaIf you were an index fund investor in the US, you would be faced with an expense ratio of 0.26 per cent, however, similar funds in India cost as much as 1.2 per cent. Index funds, by their definition, need lower attention, research and hence lower costs. Actively managed funds need help of research and information to help identifying stocks, however, an index fund blindly buys stocks in the same proportion as the index it mimics. But with the costs of actively managed funds at 2.2 per cent, index funds still cost less, though economies of scale that allow lower costs are still some time away. Low rates hike profits of India IncIndian companies have used the low interest regime to cut costs and boost profitability. A study of 500 companies revealed that the interest expense has gone down to 3.08 per cent of the sales turnover in April to September 2003 as compared to 17 per cent in the same period last year. The savings in the interest burden contributed to a 39 per cent rise in profits for the third quarter of 2003-2004.
