The longest rally by the Sensex in fifteen years came to an end on Thursday as the Bombay Stock Exchange benchmark ended with a loss of 69 points.
Mint Rd may have deferred a correction
MUMBAI: The longest rally by the Sensex in fifteen years came to an end on Thursday as the Bombay Stock Exchange benchmark ended with a loss of 69 points.
But the stage seems set for another rally with the Reserve Bank of India deciding to take the Market Stabilisation Scheme bonds route to suck out excess liquidity than raising the cash reserve ratio.
“We are getting into a beautiful sweetspot where the RBI needs to just manage inflation,” said Lalit Thakkar, director-research, Angel Broking.
“The rupee’s appreciation has affected a few sectors. But if you take a holistic view, it has been beneficial to the economy. With portfolio flows keeping liquidity high and interest rates staying around 7 to 10%, there is enough credit to maintain the growth rates,” Thakkar said.
Analysts said there will be some corrections in the short term since the markets have run up fast, but there is no need to develop cold feet; rather, keep a long-term view.
“If you take a three-year perspective there is no need for any concern. The Sensex companies are quoting at 19 times FY09 earnings. This is not cheap, but this is not expensive either, especially considering the amount of foreign money lined up,” Thakkar said.
The last time the Sensex ran for 11 consecutive sessions was in February 1992. Driven by the then-Big Bull Harshad Mehta, the index had gained 40% to leap from 2382 to 3547.
In the two sessions that followed, it corrected by 10%.
The latest rally is much sober in comparison, but from a high base of 15504, it has added 15% or 2342 points.
But fund managers are a touch worried about the structure of this rally because domestic institutions have largely kept away.
While the foreign institutions have bought stocks worth 18,948 crore in September alone, domestic instituitions bought only equities worth Rs 760 crore.
In August, they had bought shares worth Rs 4,165 crore, while the FIIs had gone on a selling spree.
Gopal Agarwal, fund manager, SBI Mutual fund, said, “We are not looking at booking profits across the board. There are some pockets which are overvalued and others which are fairly valued. We are getting out of the overheated ones but are staying put in others.”
But he warns investors to be cautious and asks them to stay away from overheated sectors. Agrawal doesn’t specify which are these.
But Morgan Stanley’s Ridham Desai and Sheela Rathi said the sectors most susceptible to a correction would be the financials including real estate, utilities and energy.
In a report on Thursday, they argued that the recent frenzy has taken their “composite sentiment indicator” from neutral territory to danger zone.
“While our composite valuation indicator is off the highs, it has climbed off its August lows. If the pace of the rally sustains, we believe the market will enter dangerous territory on both valuations and sentiment,” they said.
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