Bulls CONQUER Mount

Fuelled by dollar power, the BSE Sensex touched a new mark, triggering celebrations. The path ahead is promising but needs to be trod with caution.

It was the day Dalal Street had been preparing for ever since the Sensex touched 9,800 points in mid-January. The peak of 10,000 points was finally scaled at 3 p.m. on February 6 after 48 trading sessions and was easily the fastest 1,000-point climb of the Sensex in this bull run. Bandmasters were kept in readiness for a full week by a TV channel and firecrackers were stocked in offices around Jeejeebhoy Towers in anticipation of the event. Many like Rajiv Choksi of KR Choksi Securities captured the images, of stockmarket screens showing the high mark, on camera for posterity.

The mood at Dalal Street on February 6 was buoyant, much like the state of the Indian economy, which has been on a growth trajectory for the past three years. On Magical Monday even passers-by were offered sweets by joyous retail investors. As jubilant people hit the streets amid the deafening sound of fireworks, the memories of Black Monday (May 17, 2004) came rushing back. For high drama had broken 20 minutes after trading commenced that day and Sensex lost 356 points after opening at 5,021 and saw the largest intra-day fall of 800 points. Almost as an applause for the performance of the Sensex now, the Government announced the next day that the economy would grow by 8.1 per cent in 2005-06.

Interestingly, the sprint is fuelled by the manufacturing sector, which grew by over 10 per cent in the last three quarters and is estimated to grow this fiscal at 9.4 per cent (up from 8.1 per cent last year). Services too are surging. In 2005-06, real estate, financing and business services are estimated to grow by 9.5 per cent, while trade, hotels, transport and communications are likely to record 11 per cent growth. The dark horses of yore, manufacturing, construction, trade and transport services, are galloping ahead.

No wonder, foreign institutional investors (FII) are queuing up to own a piece of the action in India. In the past three years they have invested $24 billion. As Uday Kotak, chairman and managing director of Kotak Mahindra, puts it: "Christopher Columbus is now discovering India."

ON THE MARK

UDAY KOTAK CHAIRMAN & MD, KOTAK MAHINDRA "Christopher Columbus is now discovering India." SANJAY PRAKASH CEO, HSBC ASSET MANAGEMENT "There is a fair amount of new money in the market." ANDREW HOLLAND EXEC. V-P, RESEARCH, DSP MERRILL LYNCH "The Sensex can touch 12,000 if inflows are unaffected." JIGAR SHAH ANALYST, KR CHOKSI SECURITIES "The high is due to FII interest and corporate earnings." DEEPAK JASANI HEAD, RESEARCH-RETAIL, HDFC SECURITIES "Global scenario will determine the course of Sensex."

The FII floodgates that opened in 2004-when total inflows in equity touched $8.5 billion-continue to support the market despite naysayers expressing doubts about liquidity. In fact, 2005 closed with FII inflows of $10.5 billion and this year has already seen $1.3 billion flowing into Indian equities through initial public offers and the secondary market.

So far, one of the concerns in this bull run has been the heavy inflow of FII money into the stockmarket, but since the last few quarters domestic mutual funds (MF) have mobilised large sums of money from retail investors. Last year closed with MFs raking in over Rs 24,000 crore through new schemes and this year's collections are well over Rs 6,000 crore, which is equal to the amount pumped in by FIIs in January and February this year.

Industry fundamentals continue to be sound and with corporate earnings growing at a strong 20 per cent, liquidity will continue to provide momentum to the Sensex in the short-term. Says Andrew Holland, chief administrative officer and executive vice-president, research, DSP Merrill Lynch, "The Sensex can touch 12,000 points by the year-end if domestic and foreign inflows remain unaffected."

Analysts and bankers, though, advise investors to be cautious as the market could be volatile at these levels. The common refrain is that the good times may continue only if reforms in sectors like power, retail and infrastructure are implemented on a war footing. Liquidity alone will not sustain the rally. Momentum needs velocity.

But for now, there are plenty of reasons to celebrate the conquest of Mount 10K.

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