Watch out, for irrational exuberance setting in. The Benchmark Sensex took a peek above 17,000-point level setting the extrapolators on the binge. There are expectations that the markets will breach the 25,000-point mark in a few months.
After Bernanke, it is the RBI that is playing good samaritan. Its move to neutralise foreign inflows into the economy easing foreign investments by Indian citizens seems to have helped boost sentiment in infotech stocks. The stocks that have been languishing for a while in the wake of a rising rupee, rode high on Wednesday on hopes that the move will now arrest its rise.
Despite these steps, the spate of foreign inflows are expected to continue in the coming days. FIIs have invested over Rs 14,000 crore in both cash and futures and options segments put together over the last one week. There is a feeling that this may sustain the momentum for some more time.
Though the exuberance seems to have set in, this does not seem to be the case across the board. About 800 points out of the latest 1,900 have come from Reliance Natural Resources and Reliance Energy stocks. However, several stocks are available still at reasonable levels.
One has to watch for sectors that have joined the momentum despite having several weaknesses. Refinery stocks such as BPCL have joined Reliance Industries in the rally. It being a regulation-sensitive stock, nobody knows which way its fortunes swing. The political scene is so confusing that the present or prospective government, if there is a change in the government, could not effect a hike in fuel prices for another one year.
Valuations have started stretching even now. When they touch the 18,000-point level they will look over-stretched. Several punters have already started benchmarking the prices to the 2008-09 earnings. These are usually pegged to next year only after December or the third quarter.
Some forecasts may be far fetched, as has been proved by profit-bookings at every level even in a momentum market. It is the best time to book-profits for the retail investor and wait for the lows to go bottom fishing.