The two rallies when the BSE Sensex rose from 8,000 to 17,000 have three common elements — both occurred in the month of September, were set afire by liquidity and were driven by real estate firms.
While high liquidity driven by global investors drove the rally in 2007, it was the infusion of high liquidity from governments worldwide that has been the primary cause of money flow in developing nations and rise in the markets in 2009.
Beyond that come the differences, with speed right on top. While it took almost 23 months for the Sensex to rise from 8,000 to touch 17,000 in 2007, the recent jump when it closed at 17,127 took all of six months.
Sectorally, after real estate, in 2007 the big driver was capital goods (riding infrastructure growth). In 2009, it is metals driven by the sudden and unexpected rise in commodity prices.
The oil and gas sector, which is currently suffering from a reduced demand worldwide, was at the helm of affairs till 2008 when the energy sector was flush with demand driven by the economic growth worldwide.
As far as the valuations go, while experts thought them to be stretched in 2007, they are being considered to be only a little overpriced at the current level. “We have moved too high too fast and the valuations look little stretched as we are discounting the 2011 earnings now,” said Manish Sonthalia, portfolio manager at Motilal Oswal Financial Services.