Time for markets now to tread with caution

For the week ended December 3, 2004, the benchmark Sensex galloped by 287.73 points or 4.7 per cent. Making the market a riskier place, the ...

For the week ended December 3, 2004, the benchmark Sensex galloped by 287.73 points or 4.7 per cent. Making the market a riskier place, the Sensex hit the all-time peak level last week following huge inflows from foreign funds. Now the big question is: Has the market gone up too high?

‘‘The market seems to be overheated now. There should a correction of 200-250 points now. Otherwise it may not be healthy for the market. Small investors should not buy at the current high levels. They should wait for a decline to enter the market,’’ said a BSE dealer.

Profit-booking may take centrestage after a spirited recent surge. Though select stocks surged on Friday (December 3, 2004), a host of others slipped on profit taking.

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The Sensex shed 6 points to 6,322.76 on Friday after rallying 101 points a day back.

FII buying has been the driver of the current market rally. They had invested over $1.4 billion in November alone. There’s no indication that they would slow down in the coming week. But things could change in the new year (2005).

The fall in crude oil prices and steady inflation are the other positive developments.

Many of the stocks have shot up to dizzy heights. Any further rise could be risky for investors. The market even ignored the Reliance developments last week.

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Meanwhile, the government has a handful of bills to decide during this winter session of Parliament that began on Wednesday.

FIIs would closely watch these bills. Any reform-oriented measure from the government would make the India story further enticing and would result in further increase in FII inflows.

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