SENSEX ON ROAD TO REDEMPTION

TENTH PASS

GREEN CHANNEL: RECOVERY AROUND THE CORNER?
The pall of gloom over the economy may just be lifting if the Sensex's good run in recent days — on Thursday, it rose 335 points to breach 10k — and pickup in steel production are any indicators...

Our Bureau MUMBAI

    THE Sensex closed above the psychological 10,000 mark on Thursday after more than two-and-a-half months, reviving fond memories of the boom time, and hopes that equities may finally be on the path to recovery. Brokers attributed the gains to frantic covering of short-positions in the derivatives segment — it being the settlement day — and the upbeat mood in global markets.
    While Indian equities have gained nearly 23% in about three weeks since the worldwide rally began early this month, market watchers are unsure if the rally is indicative of an impending recovery in the economy. Since March 9, the Sensex has gained 1,842 points, with five stocks — Reliance Industries, Infosys Technologies, HDFC, ICICI Bank and HDFC Bank — accounting for over 53% of those gains. Reliance alone accounted for 25% of the rise, as market is expecting some announcements related to production of gas from its KG Basin blocks shortly.
    The Sensex closed at 10,003.10, up 335.20 points, or 3.5%, over its previous close, while the 50-share Nifty closed at 3,082.25, up 97.90 points or 3.3%. According to provisional data on BSE, foreign funds net bought close to Rs 1,300 crore worth of shares, easily offsetting the net Rs 462 crore worth of sales by local institutions.
    "Even after the recent runup, shares are not significantly expensive," said Sashi Krishnan, CIO, Bajaj Allianz Life Insurance. "We will continue to be buyers in stocks where we will find value. I think there is lot of value in many stocks at this point of time," he said.
Brokers said mutual funds have been booking profits due to redemption pressures, but insurance companies continue to be steady buyers. "Strong insurance flows in March may lead to further buying in equities going forward," said Vikram Kotak, CIO of Birla Sun Life Insurance. "This (the recent rally) is an early sign of risk aversion reversing, with the US currency's depreciation leading to money moving out of sovereign securities to commodities and equities," he added.
    Significantly, however, the government announced its huge borrowing programme just an hour before the closing bell and the details later.
RETAIL INVESTORS PLAY IT SAFE
RETAIL INVESTORS, WHO USUALLY
get carried away by a sudden frenzy in the market, are treading a bit cautiously. While the Sensex has risen more than 1,800 pts in the past three weeks, the second-rung stocks have underperformed, reflecting the small investors' lack of confidence. P 16 Capital goods stocks drive up indices
CHANCES are that some smart operators may have pared their positions after the borrowing data; a clearer picture of which may emerge on Friday. One of the biggest market operators is said to have built a sizeable position in bank counters.
    Key Asian markets rose between 1% and 4%, while European markets were mostly lower, sobered by a 6.3% fall in the US economy during the fourth quarter of 2008. According to foreign media reports, the decline was higher than what most market watchers were expecting. The number of people claiming jobless benefits has risen to a record 5.56 million, underscoring the economy's woes.
    In a move that could tighten capital flows across the world, treasury secretary Timothy Geithner plans to bring large hedge funds, private equity firms and derivatives markets under federal supervision for the first time as part of a revamp of the US financial rules.
    Back home, Thursday's rally was driven mainly by capital goods, with the BSE Capital Goods index rising over 6%. Star performers included ABB, Bhel and Larsen & Toubro, which rose between 3% and 6%.
    Brokerage house Credit Suisse is not excited about the prospects for the sector, saying that industrial output data suggest lower order flows for capital goods firms in FY10.
    "In the past, a recovery in IIP from such low levels has been backed by a stock price recovery with a lag of at least 6-12 months. This essentially indicates that a sustained recovery in macro fundamentals is more relevant for stock price performance than a mere reversal in IIP trends," the Credit Suisse note to clients said.