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Journalism of Courage
K A Viswanath, a retired government official, looks relaxed these days. An occasional dabbler in stocks, this Mumbai investor has finally made good on Dalal Street. The Grasim Industries stock which he bought nearly three months ago has now appreciated by over 52 per cent to Rs 526. He has netted a cool Rs 18,000 on the 100 shares he acquired for Rs 34,500.
Even skeptics who initially expressed doubts about the longevity of the bull run are coming over to the other side8212;the one which believes this rally is for real. Unlike 2000-01 when the run on infotech propelled the market to a peak, and then a nightmare crash, this time the good cheer is spread across-the-board.
More precisely, manufacturing companies across sectors are leading the bull bandwagon. The Sensex which crossed the 3,800 level on Friday has gained 28.7 per cent in the last three months. Investors8217; wealth has shot up by a massive Rs 2,00,438 crore to Rs 729,985 crore.
Several key stocks have done well for themselves during this period: Reliance surged by 38 per cent to Rs 357, M038;M by 79 per cent, SAIL by 155 per cent and Larsen 038; Toubro by 48 per cent. Good corporate performance, a better monsoon, robust economic growth, rising foreign fund inflows, low inflation, falling interest rates and high foreign exchange reserves are among factors responsible for current rally.
How much longer?
So far so good, but will the rally continue? Says Pawan Charnidharka, member of BSE: 8220;The rally is sustainable with due correction and it is fuelled by strong corporate earnings, low interest rates and attractive valuations.8221; In fact, the market has seen a sustained flow of money into stocks. Foreign institutional investment also increased.
FIIs8212;who are betting on a monsoon-led recovery in a domestic demand-led economy8212;have brought US 1.23 billion into the Indian markets since May this year. 8220;But nearly one-third of this money was brought by hedge funds which take a short-term view on markets. This money can be pulled out in a short period, creating a big volatility in the market,8221; said a market source.
Is there further room for the rally to continue? 8220;Markets have clearly reached an interesting phase and it will be important to see how the market is able to digest the high stock prices, which it has seen after a long time,8221; said an analyst with ING Savings Trust.
So far, stocks have already factored in the good monsoon and the demand-led economic growth. Punters say the market needs more tonic for a sustained rally. 8220;The corporate sector should perform better in the second quarter of 2003-048230; and other economic parameters should remain strong,8221; says Dharnidharka. But, according to him, watch out for negative factors like reversal of interest rates, political upheavals ahead of the elections, outflow of FII funds etc. With the feel-good factor back in the economy, everyone is hoping that the bears will remain in hibernation.
What to target?
Analysts and broking firms are once again active, dishing out 8216;buy8217; recommendations. 8220;But never forget the old saying 8216;before deciding what to buy, consider when you will sell8217; and never get into the trap of any rigging exercise by broking syndicates,8221; says a fund manager.
Research houses and fund managers are bullish about pharmaceutical, cement, steel, bank, oil 038; gas and automobile stocks. Some of the companies in these sectors have given a 50 per cent plus returns in the last three months.
8220;Despite the recent rise in the equity markets, 25 per cent would be buyers even if prices rose 10 percent from these levels. It8217;s no surprise that all fund managers polled would be buyers if prices fell 10 per cent from these levels,8221; Merrill Lynch said after a survey conducted on fund managers.
As ING Saving Trust put it: 8220;The key test will be if underperforming sectors are able to catch up and truly confirm the broad-based nature of this market.8221; It is to be seen if some of the sectors like FMCG will catch up with the rest. Some infotech companies8212;which are yet to participate in the bull rally8212; have given encouraging guidance for the second quarter July-Sept of this year. The initial public offering market is also expected to pick up after the successful entry of Maruti Udyog into the markets. TCS is a big ticket IPO before December this year. According to fund managers, PSU stocks will be a good attractions provided the government takes more determined steps on the disinvestment front. With the elections on the anvil, fund managers are not sure whether the government will privatise more companies. It has already put on hold Nalco disinvestment.
The next two months will be crucial for the stock markets. It will be either a phase for consolidation of recent gains or a fall from the current high levels. But as billionaire investor Warren Buffet had warned: 8220;We do not have, never have had, and never will have an opinion about where the stock market, interest rates or business activity will be a year from now.8221;
It8217;s time to listen to him. With Dev Chatterjee
