Business Today

October fest begins at D-Street on way to 21K

Sustained capital inflows in equities, coupled with a firm market trend, helped the 30-share benchmark touch a fresh 32-month high of 20,445.04. Nifty closed at 6,143.40.

B. S. Srinivasalu Reddy | October 4, 2010 | Updated 17:48 IST

In a spectacular start to October, that too following a splendid September, the bellwether Bombay Stock exchange ( BSE) Sensex gained about 376 points on Friday, taking it closer to its life- time peak of 21,206.77 points seen in January 2008. The initial show for the month also belies the fears that October could be the worst month of the year.

Spate of foreign- institutional investor ( FII) inflows continued to remain the main reason for the rally that has taken the Sensex to a 33 months high of 20,445 points. Broadbased National Stock Exchange ( NSE) Nifty index rose 113.45 points or 1.88 per cent to 6,143.40. FIIs invested a net of Rs 1,825 crore on Friday, according to information provided by the stock exchanges.

Derivatives expiry passing on smoothly and on a positive note the previous day, and non-controversial verdict on the vexed Ayodhya dispute also helped the market sentiment on Friday.

"There is no respite in foreign inflows. The trend shows that the Sensex has the potential to cross 22,000-point mark before December 2010," said Manish Sonthalia, vice-president, Motilal Oswal Asset Management Company.

FIIs have pumped in a record Rs89,000 crore (or $19.432 billion) during the year so far. They are pumping funds into emerging markets like India, with many developed countries having brought down their interest rates, in a bid to boost their sagging economies.

The high beta, realty sector was the star performer of the day on Friday. Metals were also charging up today. Backed by good sales growth in September and recent price hikes, auto stocks also boosted the sentiment.

Even the mid-cap and small-cap stocks have seen some momentum coming their way. "Nifty's long-term trend along with short-term trend is up. Bulls are in control at the moment.

However, Nifty has some resistance in 6200-6350 levels and some profit-booking may be seen from these levels. Therefore, investors should be cautious," warned Puneet Kinra, senior technical analyst (equity research) of Bonanza Portfolio Ltd.

Sonthalia feels that the results for the quarter ended September would not add up to the market much as they are likely to be " as good as that of Q1 ( April- June quarterly) results". However, the flurry of activity in the initial public offerings ( IPOs) seen recently could upset the applecart in the coming months, given that they could absorb funds waiting to be put in the stock market.

There is a general apprehension in the market that the rally may not last long, given that it is not cheap any more.

Sonthalia said, "Market has the tendency to trade above the fair value during bull phases. At present, 19,000- 19,500 points range is considered to be the fair value for Sensex.

Considering that it could command about 15 per cent premium to these valuations, the bellwether can cross 22,000- points mark any time soon." In the bull phases of 2006 and 2007, Sensex commanded a premium of 20 per cent above fair values. During the bull run that ended in January 2008, the premium shot up to 65 per cent above the fair value.

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