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10k: Historic high for Sensex

Accelerating like never before, the BSE Sensex gained 238 points on Monday to crack the 10K barrier in intra-day trading.

india Updated: Feb 11, 2006 19:43 IST
ARUN Kumar

Accelerating like never before, the BSE Sensex gained 238 points on Monday to crack the 10K barrier in intra-day trading. Finally it ended short, closing at 9,980.

This is India's longest-running bull orbit, proceeding despite the odd glitch since June 2003. "This is a reflection of India's re-rating as an economic force," says Uday Kotak, vice chairman, Kotak Mahindra Bank. "There might be a cyclical correction but the secular story is in place."

Gul Tekchandani, a leading stock analyst, feels the market fundamentals are strong. "Many of the equities still offer attractive valuations compared to their peers in other emerging markets," he says.

A key reason for the sustained rally in the Indian markets is the radical change in the perception of foreign fund managers. "The growth story of Indian Inc is not only credible but also sustainable as we're in the middle of a robust growth cycle," says a leading banker, adding that the market surge cuts across all sectors with foreign investors optimistic about the country's economic potential.

Interestingly, the Nifty is in the oversold zone to the extent of 30 lakh stocks. Whenever this is squared off, it may push the market further upwards.

What triggered it?

Last year saw an overdrive in investment by the FIIs. Over $10.7 billion was invested in the stock market.

And if that wasn't enough, a curious confluence of investment flows took place. The emergence of strong domestic investors -- who had invested directly or though mutual funds or through private portfolio investment management -- drove the market ahead.

Experts say Indian investors in all categories may have pumped in around Rs 25,000 crore in the stock market -- of this, Rs 12,000 crore was routed though mutual funds. All told, the total investment flows into Indian equities last year was about $16 billion.

The year also saw mega deals, big MNCs coming to India (among them: Vodafone) and Indian firms going for overseas acquisitions.
This year, till now, the FIIs have invested over $1.05 billion.

Why’re funds flowing?

"India is in the Christopher Columbus phase," says Kotak. "It's being discovered as a strong and robust economy by global fund managers."

The number of FIIs in India is increasing every month, clearly reflecting that those who missed the bus earlier are willing to take a fresh ride.

The strong market system is also facilitating the inflows. Last year, the market dived by 1,200 points as the rupee went soft against the dollar and there was speculation that intelligence agencies had been roped in and a mega investigation was on. Order, however, was quickly restored. The exchanges, together with the market regulator, Sebi, decided to clean up the system.

The speculative bubble was nipped in the bud by going after penny stock manipulators. Result: you have a strong economy combined with strong risk management systems in place.

How long will run last?

This is the million-dollar, nay, billion-dollar question. Most analysts believe that barring some cyclical correction, the India growth story is secular and, therefore, sustainable.

Analysts and traders expect the market to climb to 12,000 points by the end of 2006 as domestic mutual funds and foreign investors pour more money into Indian shares on expectations of sturdy profit growth. "Based on fund flows, this is not a flash in the pan. The index will touch this mark again this week," says Falguni Nayar, executive director, Kotak Securities. Devesh Kumar, head of equities, ICICI Securities Ltd, also thinks the market will march on further.

First Published: Feb 11, 2006 19:43 IST