Sensex scores second-fastest 1000 points

 

MUMBAI: Peaks are passé - at least for the Bombay Stock Exchange Sensex. So Tuesday was another day, another peak and a brush with another milestone. Nothing extraordinary, other than a psychologically important mark being breached yet again in this secular bull run that began way back in May, 2003.

 

Though the Sensex surged past 14,000 on Tuesday, the 1,000-point gain from 13,000 translates to just a 7% expansion of the index. Little surprise then that it took just 27 days to navigate, making it the second fastest 1,000-point run so far. The fastest was the one between 11,000 and 12,000, which took only 20 days.

 

In the latest 1,000-point sprint, the Sensex took four days for every 1% gain. The stretch between 11-12K yielded 1% every two days. The longest stretch of agonising was in the 12-13K patch, when every 1% gain took 17 long days. This indicates that the 13,000 level was a key resistance level.

 

In fact, once this resistance was broken, the trot became a gallop, riding on the extraordinary second quarter results from Indian corporates.

 

“The consensus figure arrived at by foreign investors to enter the markets was 13,000.

 

Though they did come in at these levels, the entry was partial as the markets started moving up quickly,” says Jayant Manglik, senior vice-president of RR Equity Brokers.

 

There are two explanations for the hasty move up. When everybody knows foreigners are buying, there’s a fair amount of front-running that happens. A second catalyst was bear trapping - when all the bulls know that the bears have a negative position, they ramp up the index, making the bears forcefully cover their short positions, taking the index even further up.

 

With the Sensex making an intra-day high of 14,028.47 on Tuesday and ending the day at 13,937.65 (a gain of 63.32 points from its previous close), the question is whether we’ve hit the top. “At the 14,000 plus levels, the markets have topped out, but only an extraordinary event can take the markets below 13,000 now. There’s too much money waiting to come into the markets if it corrects. With the kind of GDP growth we are seeing, tanking, as seen in May, is out of the question,” says Manglik.

 

2006 has seen five psychologically important 1,000-point multiples being breached, starting from 10,000. In this, the latest 1,000-point rally has seen the maximum amount of foreign institutional investor (FII) interest. Their average net buys on a daily basis works out to Rs 440 crore.

 

According to analysts, a break in this momentum will set in only if inflationary concerns make central banks the world over tighten monetary policy, thus increasing interest rates.

 

“The European Central Bank has indicated that it would raise rates this week, which may not trouble the markets much. But in January, the Bank of Japan may raise rates, which could impact sentiment as Japan is the cheapest source of money supply,” says DD Sharma, senior vice-president of Anand Rathi Securities.

 

Last week, Bank of Japan governor Toshihiko Fukui had said that a rate increase was unavoidable to prevent excessive investment and asset price bubbles and sustain the country’s longest post-War economic expansion. Over to Japan.