Date:05/12/2005 URL: http://www.thehindubusinessline.com/2005/12/05/stories/2005120502370400.htm

Back Sensex may consolidate around current levels

Jayanta Mallick

THE Sensex attempted a couple of times to sail past the 9000-point mark last week. But the liquidity flow was not enough for its venture into the new territory. Though still positive, the liquidity inflow needs more steam to move ahead convincingly.

Domestic money was crucial in the Sensex's journey from 8500 to the current level. The overseas fund flow played a second fiddle. Will the FIIs take the driver's seat in pushing the Sensex beyond 9000 points?

At this point of time, divergence in investment strategy for Indian equities appears to keep the fresh flow at a moderate level.

Some FIIs, primarily from the US and Europe, are stressed by the valuations of the frontline stocks, which they argue have risen to a level commensurate with those of the US equities.

India-only funds: In the last three years, the domestic benchmark index has doubled in value. However, during this period there has been a constant growth in new India-only funds.

Now, when the local benchmark is scaling its new all time peak, fresh interest from new corners is popping up.

Almost every month a new fund dedicated towards Indian equities is being created.

This is besides already increasing allocations for Indian stocks in broad and diversified Asia or emerging market-targeted funds. Some of these funds have exposure in Indian equities to the extent of more than 30 per cent.

Growth play: According to global fund observers, rise in stock prices in India has been accompanied by earnings growth.

Some of the India funds have produced a return of over 75 per cent in the last one year and over 50 per cent in the past three years.

It is becoming very difficult for the overseas investors to ignore Indian growth story, even though some fund observers have prescribed investors to restrict their exposures to volatile equities in emerging markets such as India to a small portion of their overall portfolio.

Even if FIIs, who have entered the market earlier, remain cautious for some time, the new entrants may decide the investment timing for Indian equities in the next couple of months.

This is because they are entering the Indian market at a higher level for growth discounting.

In the short-run, however, the hype and caution seem to match. The Sensex is likely to consolidate this week around 9000 points.

In the mid-cap space, it is more a stock-specific play than a sectoral move that Dalal Street may witness.