The Sensex has moved over 1,000 points in two sessions, in a relentless euphoric move. The rally up to the time the US Federal Reserve cut rate in September was guided by caution, and it is in reverse mode since then. If the Sensex can move at this rate every day any kind of target is possible, be it 20,000, 21,000 or even 23,000 by Diwali. The market is a function of foreign portfolio money, comments one broker – global funds this month have already bought over Rs 10,000 crore worth of shares at the net level this month.
One of the arguments to support the current rally seems to be that if China can trade at exorbitant valuations why can not Indian stocks be re-rated and granted higher price-earnings ratios than what was earlier thought reasonable. Second, at 8.5 or 8.6 per cent GDP growth, India would still be one the fastest growing economies to justify increasing exposure to the Indian market. Fund managers and traders say all that they can do right now is to ride the momentum and just hope that we get out before the momentum slows. Mutual funds have been consistent sellers in this market and they say they will ride the momentum for a while even after they reach their valuation targets.
Capital goods, infrastructure and energy are the darlings of the current leg of the rally. The demand side is clearly visible and supports the valuations logic to some extent, but only time can tell the ability of the companies to deliver the kind of growth that is expected. Larsen & Toubro, BHEL and NTPC are all favourites that have had very rapid rise. Energy stocks are on the rise purely on the basis of the demand requirements of the sector and their ability to grow, which is not a new element. Reliance Industries, Reliance Energy and other Reliance stocks are all moving on lot of information flow. The market has currently discounted all the possible positives and anticipated negatives so only a surprise element can change the market course.