Date:06/12/2004 URL: http://www.thehindubusinessline.com/2004/12/06/stories/2004120601380400.htm

Back Sensex to jump or slump: It's anybody's guess!

Jayanta Mallick

THE stock market in the last two weeks has been breaching resistances in the key indices and moving northwards on higher liquidity. The momentum has been attracting more money to create a spiral.

Now the market has reached a height where a section of seasoned investors feels uneasy about the valuations of the blue chips. But the current market leaders - the FIIs - have different compulsions than that of the domestic investors.

Weakening dollar reportedly appears to have provided additional reason for increased overseas fund flow into India. Should, from that point of view, the valuations of the pivotals - particularly those, which figure on the BSE Sensex or the CNX S&P Nifty - look cheaper? The funds, which are pumping in money now, would be able to answer.

A section of domestic players, including institutional investors, has, of late, been taking profits and making quiet exits from the blue chips.

But the broad bullish trend has not been influenced by the selling because a large group of punters has been following FIIs and a majority of the domestic players have not taken a call on the valuation.

The currency dependent liquidity, on the other hand, presupposes that rupee would continue be either stable at the current rate vis-à-vis dollar or improve further. Here, some may argue that in case of probable revaluation of Chinese in the near future, rupee would lose in relative importance and Indian equities may then look unattractive.

It is interesting to note that in the last couple of weeks, rupee has appreciated by around two per cent. But in terms of P/E, Indian benchmark has moved far ahead of others in the emerging economies.

In the context of investment strategy, old India hands in FIIs seem have a different view than the newcomers. The FIIs who are in the country for more than five years do not appear to be particularly enthused about the currency argument.

However, since they have not ventured much beyond the 50-stock basket of the Nifty, the effect of their operation has not greatly been different from freshers, who are flocking on the top fifty Indian equities.

This week, it would be toss of a coin - a wider profit-booking or higher liquidity. Any negative news flow should be enough for speculators to change court.