Reaching seventeenth heaven in a flash

MUMBAI: The journey from gloom in the south of America to glory in South Africa took Indian cricketers six long months. But local bulls needed just one to get out of their own North American quagmire.

It took the Sensex just 28 trading sessions to recover from its 2,000-point loss, the lowest point of which was reached on August 17 — at 13779.

Since then, the BSE posterboy has gained an incredible 3294 points or 24% to touch 17073 on Wednesday. In the process it also notched up the fastest 1000-point run ever - from 16000 to 17000 in a 5-day flash.

The previous record for the shortest 1,000-point journey was 19 days, when the Sensex soared from 11000 to 12000 in March 2006

Though valuation worries have been surfacing time and again, incessant flows have been driving the stocks to newer highs. While August saw withdrawals of Rs 7,526 crore by foreign institutional investors, in September so far, they have bought in excess of Rs 12, 018 crore.

While the rally has been broad-based with 20% plus runs in both BSE Smallcap and BSE Midcap indices, not all sectors have performed equally well.

Real estate has been the top performing sector followed by metals. While the view that interest rates have peaked spurred the real estate rally, metals were spurred by the improved outlook for the steel sector.

The BSE Realty index shot up 37% and BSE Metals rose 36 % since Aug 17. Says Deepak Jasani,head of retail research, HDFC Securities, “Both these sectors are playing a catch-up game. They had taken a severe beating after the July 24 peak, losing more than 20% each. Realty stocks also got a boost from the Fed rate cut, which has given rise to the view that interest rates might have peaked here.”

Among the metal companies, it’s the steel pack that is leading the rally, while there is not much participation from other metals like aluminium.

“The steel price outlook has improved over the last two weeks boosting stocks such as Tata Steel and SAIL,” Jasani said.

The other sectoral indices that has rallied hard — over 35% — is the BSE Oil and Gas. However, it is largely driven by the Sensex superstar - Reliance Industries and its subsidiary Reliance Petroleum.

Together these two stocks account for 70% of the BSE Oil and Gas Index. RIL has run up 32% during the rally to close at 2,321. RPL stock rose 42% to close at Rs 155.

IT and healthcare stocks have been the laggards during this period. A strengthening of the rupee is seen as a huge negative for the export-oriented sectors as it reduces their realisation profit.

However, a few measures announced by RBI on Tuesday aimed at checking the appreciating currency lifted sentiment in these counters.

The central bank relaxed the norms for outbound investments by mutual funds and raised the limit for companies to prepay their external loans.

Satyam Computer was the top gainer from Sensex pack. It soared 5.05%. Other IT pivotals Infosys (up 3.10% to Rs 1826), and TCS (up 4.48% to Rs 1047), also gained Wipro, jumped 4.76% to Rs 456.50.

R Rajagopal, chief investment officer, DBS Chola Mutual Fund, said IT stocks are emerging as a good contra bet.

“For the first time, the IT companies are trading at a PE multiple which is reflective of their growth potential. AT a PEG of higher than 1, they look really attractive. Earlier, investors used to look at IT stocks only from a growth perspective, now they can be looked at as both contra and value perspectives.”

IT stocks also came alive in the F&O segment.

“We saw some contrarian buying in the IT counters and also a lot of short covering,” said Karun Mutha, head of derivatives, IL&FS InvestSmart.

Mutha does not see any weakness building up in the market.

“The rollovers gained momentum during the day. It was in the range 60% marketwide. I don’t see any weakness as of now. Post expiry, there may be some profit booking. Action is stock-specific rather than sectoral. Some of the smaller stocks have seen good interest and have also seen long rollovers,” he added.