Date:05/03/2005 URL: http://www.thehindubusinessline.com/2005/03/05/stories/2005030502920100.htm

Back Sensex gains 64 pts at 6,850 — Investors find shine of bourses hard to resist

Our Bureau

Mumbai , March 4

FLUSH with money, fund houses are in no mood to pause and ponder.

Bourses continued their post-Budget exuberance taking the indices to un-chartered territories. With too much money chasing too few good stocks, the market seems to be in no mood to look back.

Taking a cue from this, retail investors also are jumping into the bandwagon.

Even though, in terms of real numbers, retail investments are no match for fund inflows, broking houses say that there has been a definite increase in participation by retail investors in the current rally.

Though usually it is presumed that retail investors always come in just before the bubble bursts, the sentiment this time around is one of there being "continued steam" in the market.

"The story of the fundamentals of the economy being good has been around for the last eight quarters. Right now, market is moving on a supply-demand mismatch. Mutual funds have mopped up over Rs 2,400 crore in the last couple of months and that is getting invested now.

"Foreign institutional investors are also continuing to push money into India, because the relative valuation, in comparison to markets such as Taiwan and Korea, are still attractive. All of this money is chasing relatively modest volume of paper," said Mr N. Sethuram, Chief Investment Officer, SBI Mutual Fund.

On Friday, trading on BSE and NSE opened strong and set the trend for the day. The Sensex breached the 6,850 level intra-day, touched a high of 6,864.62 and closed for trade at 6,849.48, up by 64.76 from Thursday's close.

At the NSE, the Nifty netted gains of 19.3 points and closed at 2,148.15, just shy of the 2,150 mark.

FIIs have invested over Rs 1,947 crore post the Budget. Sustainability of the current market hinges largely on corporate results announcements.

"The challenge would be the results announced for the September 2005 quarter. By this time, we will have a clear idea of how the monsoons have fared as well," said Mr Ved Prakash Chaturvedi, Managing Director, Tata Mutual Fund.

Unsustainable valuations are especially poignant among the mid-cap scrips. Most IPOs of mutual funds lately have been for mid-cap funds. Fund houses have collected Rs 400-600 crore on these IPOs.

"When all these funds start investing, the 30-40 sound mid-cap scrips would see a substantial run-up in prices of these stocks," Mr Sethuram said.

Market participants say that there is likely to be a correction if corporate results do not justify current valuations. While there seems to be consensus that valuations in the market have substantially run up, there seems to be no move to correct them immediately.

"The mood in the market, especially among well-researched stocks, is to buy whatever is available. There are only a few lone voices of caution and they are getting drowned in all the excitement," said the equity head of a broking house.