Sensex at all-time closing high, but euphoria’s missing

Mumbai: The 30-scrip BSE sensex closed at an all-time high of 21,034 points on the back of aggressive buying by foreign institutional investors (FIIs) with access to lowcost funds in the US. But the euphoria that normally accompanies such milestones was missing—and for good reason, because the real economy is anywhere but on ahigh. Economic growth is at 4.4% (for the quarter ended June), less than half the 9.2% it was at when the sensex was 

its previous peak of 21,005 in November 2010. It's not very different from the US situation, where Wall Street and 'Main Street' have diverged. 
    The record peak for the benchmark index comes at a time when several broking houses are either cutting salaries or shutting shop because retail investors, who have not made much money in the last five years, are staying away from Dalal Street. 
    This has been a narrow rally driven by a few select stocks that the FIIs have favoured. Of the 30 sensex stocks, only 13 have returned double-digit gains since the last peak in 2010. In contrast, five stocks lost nearly 50% and 14 have given negative returns during the same period. 
    And although the sensex has gone past the last high, the more broad-based indices like BSE-100, 200 and 500 are well short of the November 2010 levels.India looks to be a safer bet than China, Brazil 
    The sensex is now just about 170 points short of its all-time peak of 21,207, reached in intra-day trades on January 10, 2008—around the same time the US subprime bubble was bursting and threatening to sink global financial markets. 
    Since Raghuram Rajan took over as RBI governor and stabilized the rupee, which had become a major investment negative for FIIs, the sensex has rallied 13.3%, backed by net foreign fund inflows of $4.5 billion. Combined with the 8.8% appreciation in the rupee to 61.24 now from 67.09 then, the total gain for the FIIs is a little over 24%. And all this in just about 55 days. 
    With the US Fed expected to continue with its stimulus package of keeping interest rates at home low and funds cheap, FIIs are punting on relatively risky assets like emerging market (EM) stocks. Significantly, among EMs, currently India looks to be a safer bet than China, Brazil and other markets. "There is ample liquidity in the market for FIIs to get funds," said Dharmesh Mehta, MD-institutional equities, Axis Capital. "With little or no fresh supply of stocks in India, FIIs are being forced to restrict themselves to a small basket." 
    There is another reason for this FII frenzy. Several fund managers are betting on a better show by the BJP-led coalition in the state elections in Delhi, Rajasthan, MP and Chhattisgarh. 
    Most market players expect the BJP, which now controls two of the four states going to polls, to improve its tally by eating into the Congress' two states. "If that happens, there'll be a euphoric rally," said the head of a brokerage. 
    In Wednesday's session, the sensex opened above the 21K mark and picked up gains through the session to hit an intraday high of 21,090 but closed a tad off that mark, but still 29 points higher than its previous peak of 21,005 on November 5, 2010. 
    Unlike in February 2000 and November 2007, when the sensex had scaled new highs followed by euphoria on Dalal Street, this new peak was rather low key. "The value of the sensex shows it is at a new high. However, retail investors feel disillusioned because the high priced stocks they owned were sold off months ago. What they are left with are stocks that have halved in value," said Arun Kejriwal, director, KRIS.