Sajid Contractor is a smart investor. In January this year, Contractor, 36, bought shares of the State Bank of India at around Rs 260 a share. In May-end, Contractor watched with glee as a frenzy for shares of public-sector banks sent prices to dizzying heights. The iron-trader-turned-Internet-stock trader eventually sold his shares for Rs 320 apiece. The stock hit a high of Rs 365 on June 6 even as the 30-share BSE Sensex moved to its highest level in a year on June 19.

PAY DIRT: Investors scramble to submit applications for the Maruti issue in Mumbai

A series of good news is behind the rally. The Indian corporate sector has performed well-a study by the Centre for Monitoring Indian Economy (CMIE) found that over 2,000 companies have posted an average 50 per cent jump in net profits in 2002-3-and has doled out hefty dividends. Net FII investment into the equity markets since April 1 this year has been Rs 3,194 crore compared with the withdrawal of Rs 352 crore during the same period last year. Besides, economic fundamentals are strong and global stock markets are rising. But perhaps the best thing about this rally is that it is broadbased. Steel, pharma, automobiles, petrochemicals, FMCG, old economy, new economy-shares of almost all sectors have been on the upswing, indicating that the rally is more sustainable than a single-sector spike.

"And, of course, it is raining," says Shailendra Bhandari, managing director, Prudential ICICI Mutual Fund. "Retail investors are just beginning to come in." Mutual funds like Prudential ICICI and Templeton India are logging in three times more inflows into equity schemes than they did even three months ago, even though debt still remains a dominant component of their assets. Broking firms like Geojit Securities and ICICI Web Trade are reporting a 30-35 per cent increase in retail trading. Last fortnight, the Rs 830-crore Maruti Udyog public issue opened to a phenomenal response from investors. It was oversubscribed on the first day and eventually mopped up over Rs 6,500 crore. Given the mad scramble by investors, there is speculation that the Maruti share price will open significantly higher than the issue price when the scrip is listed next month, which will further fuel the rally.

The virtuous cycle doesn't end here. The Maruti public offer seems to have emboldened the Government to go ahead with public issues of other PSUs. Public issues of PSUs like Nalco, BPCL and NTPC and private companies like TCS and Idea Cellular could be next in line. "Maruti may have infused new life into the primary market that has been comatose for the past seven years," says Prithvi Haldea, managing director, Prime Database. Adds Shitin Desai, vice-chairman, DSP Merrill Lynch: "There is only good news all around."

Even so, the rally in the secondary market has seen very few small investors. "It is the wealthy individuals who have jumped in so far," says Ravi Mehrotra, president, Templeton Asset Management India. While analysts believe that the entry of the small investor is crucial for a further rise in the stock markets, there is also a fear that small investors could burn their fingers yet again. "All stocks are bought only to be sold. Don't fall in love with them," says Desai. Adds Bhandari of Prudential ICICI: "Investors must not get too greedy. They must take some money off the table periodically."

Thankfully, this time round there is no Harshad Mehta or Ketan Parekh pushing up share prices. Rather, the rally is based on fundamentals. Besides, the price rise has been interspersed by periodic corrections which, experts feel, is a healthy sign. But there is always a looming fear of a scam. As Uday Kotak,vice-chairman and managing director, Kotak Mahindra Bank, says, "We are at the beginning of the bull story. But investors should watch out what they buy." In fact, the Securities and Exchange Board of India is probing the sharp rise and fall in banking shares. Also, there is concern over the drop in trading volumes recently. From about Rs 3,800 crore in April, the daily turnover at the NSE dipped to Rs 2,300 crore on June 16. Experts are also advising lay investors to opt for mutual funds.

Contractor, of course, is high and dry after having liquidated most of his holding in the first flush of the bull run. "My mantra is simple: cash in after you make a 20 per cent profit. To make money, you have to sell shares. So don't hold on to them forever," he says. As bulls take a firm grip on stock markets, these are words retail investors would do well to remember.