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Sensex may touch 10,000 mark this week

Sensex is expected to hit the 10,000 mark, capping a nearly yearlong rally driven by unprecedented demand from foreign investors.

india Updated: Jan 31, 2006 17:16 IST

India's benchmark share index is expected to hit the 10,000 mark this week, capping a nearly yearlong rally driven by unprecedented demand from foreign investors, traders said.

The Bombay Stock Exchange's 30-share Sensex index was hovering around 9,900 points on Monday, after rising 3.7 per cent last week, and market players were betting it would reach 10,000 very soon. "It's a matter of adding just 100-odd points. That should happen anytime," said Pankaj Batra, a New Delhi-based broker. "There is a lot of liquidity. Money is coming in from all sources - retail investors, mutual funds and foreigners."

Indian share prices have soared in the past year, driven by record investment by foreigners eager to seize opportunities in one of the world's fastest-growing economies, which is expanding by close to 8 per cent a year.

The enthusiasm of foreign investors - who bought a record $10.7 billion (euro8.79 billion) of Indian stocks last year- has encouraged Indians to park more money in equities, helping domestic mutual funds make new offerings.

Four major funds launched this month have already mobilized over Rs 60 billion ($1.3 billion; euro1.07 billion) and a significant part of that money is expected to enter the market this week, said Dhirendra Kumar, chief executive of Value Research, which tracks mutual funds.

"The liquidity scenario remains very good," Kumar said, adding that he expects the stock rally to continue, although with occasional downward corrections.

But many investors are worried that the stocks are overvalued. "The risk-reward ratio is high. There is too much money chasing too few stocks," said Vijay Gaba, a New Delhi-based investor. Gaba, who has bought heavily into cement, sugar and metal stocks in the past year, said he has stopped buying in recent weeks. "For investors there is very little opportunity at this point. It's the big funds that are in the market now."

The Sensex has risen 60 per cent since May last year, when the current rally began. The market surge cuts across all sectors, from cement, steel and banking, which have been driven up by a housing boom, to hotel chains that are putting up more tourists. Impressive earnings reports from Indian companies through successive quarters have sustained the rally.

Major industrial companies such as oil and petrochemicals giant Reliance Industries Ltd and the Tata group -- which includes divisions that produce steel, automobiles and software-- are thriving on increased exports and strong domestic demand. They also have been able to cut costs and improve quality.

But the big push for stocks has come from foreign investors, especially the Japanese, who have entered the Indian market late but are bringing in huge chunks of funds.

Last week, Japan's ambassador to New Delhi, Yasukuni Enoki, said the Japanese accounted for nearly half of the foreign money that came to India in the past year for investment in stocks. Analysts expect Japan to invest more this year. Other than the prospects of good returns, the Japanese are also driven by strategic interests in investing in India, said Neelesh Shah of ICICI Prudential Mutual Fund.

The Japanese are increasingly looking to India as they become wary of China, Shah said.

"Their options among emerging markets are limited. Brazil is far away, with Russia they have a boundary problem," Shah said. "We carry no historical baggage."

First Published: Jan 30, 2006 12:25 IST