It was time to celebrate all right, but traders are realising that as the Sensex keeps headed northward, it's taking its time to scale new heights. Consider: For the Sensex to surge from 13,000 to 14,000 took just 36 days. The move from 14k to 15k, however, took all of 215 days. There were a few other dampeners, too. For instance, of the 30 shares that make up the Sensex, only 12 outperformed the benchmark, with the other 18 underperforming on the ride from 14k to 15k. Amongst those to disappoint were Bajaj Auto (down 23 per cent), Tata Motors (down 19 per cent), ITC (down 18 per cent), Hindustan Unilever (down 16 per cent) and Cipla (down 16 per cent). On the other hand, Larsen & Toubro was the biggest gainer among index stocks, sky-rocketing by 64 per cent. Other stocks that contributed to the Sensex hitting 15k include Bharti Airtel (up 36 per cent), Reliance Industries (up 34 per cent), Tata Steel (up 33 per cent) and ICICI Bank (up 27 per cent).
Says Rajat Rajgarhia, Head of Institutional (Research), Motilal Oswal: "Unlike when the index hit 14k, this time the mood in the dealing room was not jubilant because of the fewer number of stocks that participated in the rise." "It's no more a buyers' market," adds Rajesh Boghani, a dealer at Parag Parikh Financial Advisors. "The market has become completely stock-specific. Companies who beat street expectations will see their stocks zooming."
But if the mood is still buoyant on the Street, it's simply because of the money waiting to enter Indian equity, even at these levels. "It's simply liquidity. The flow of currency into the market from all corners has led to the rally," says Ketan Karani, Vice President (Research), Kotak Securities. "There is no euphoria and the rise is on pure fundamentals. With order book of corporate India full till 2010-11, FIIs are buying Indian paper, which compared to most of the other emerging markets is still lucrative." The infusion of capital from FIIs is also because of the strong rupee. And there's anticipation that further weakness in dollar will give them an extra edge to make some currency gains.
Says Boghani: "The recent rally was on two counts. One is on anticipation of the IT results. Despite the rupee appreciation, the Street expects the IT results to beat expectations. Second, FII flows are still strong." Since 14k (on December 5, 2006) to 15k (on July 6, 2007), the FIIs have infused over $6 billion (Rs 25,917.40 crore). This is nearly three-fourths (72 per cent, or $8.4 billion) of the money pumped in by FIIs between January 1 and December 4, 2006.
Some cooling off on the inflation and interest rate front, too, has provided investors a shot in the arm. Price/earnings multiples (P-Es) too still look attractive, at 21.6 times (trailing) earnings with the Sensex at 15k. In contrast, the Sensex P-E stood at 23 times at 14k levels.
Yet, the worry is that a dip in earnings, courtesy a base effect and a rapid rupee appreciation may soon make Indian stocks look expensive. According to Motilal Oswal Securities, the Sensex for 2007-08 should record an 18 per cent growth in net profit and a 17 per cent growth in 2008-09. (That's down from a 31 per cent growth in earnings in 2006-07). That's why the likes of Rajgarhia are a bit cautious about the nearer term future. "In the next nine months, we expect the Sensex to hover in the range of 14k to 17k," he says. Over the longer term though, almost everybody is bullish. "I don't see a problem in the Indian markets. It's liquidity-driven and some correction will not hamper the market," says Karani. Adds Rajgarhia: "If earnings growth is sustained, we may see the index touching 23k before 2010." Nobody's scoffing, not anymore.
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