Sensex roars past 15k on reforms hint

Gains 80% In Less Than 3 Mths, Among Top Performers

IN HIS prime, Big Bull Harshad Mehta did not have to actually buy a stock to send its price shooting...he merely had to enquire about its price. The newly-elected UPA government seems to be wielding a similar power over the markets. The mere mention of proposed economic reforms is enough to send delirious bulls rushing to load up on shares, almost certain that a new bull market is underway. As the 30-share Sensex rebounded 400 points from the day's low to close above the psychologically important 15,000-mark on Thursday, a large section of deep-pocket buyers are worried that the market is now climbing too fast for comfort.
    They may have reasons to worry. A recovery in corporate earnings still appears to be some way off, so too is a pick-up in the global economy. And while there is little doubt about the government's intentions on economic reforms, it remains to be seen how soon and how much of it will eventually be executed. The fear is that if the market overheats, and the reality turns out to be different from expectations, the ensuing correction could be a steep and painful one.
    "I am neutral on the market at this stage. Valuations have risen to a stage where they are now being justified by ambiguous parameters (rather than traditional ones like price-earnings ratios)," said Nilesh Shah, deputy managing director and chief investment officer, ICICI Prudential Asset Management Company. He further cautioned that the market was expecting too much from the Budget, and could be in for a disappointment. "A correction around that time would be a good time to take a fresh view of things," he said.
    The 30-share Sensex ended the day at a nine-month high of 15008.68, up 137.78 points, or 1%, over the previous close. This is the first time since September 2, 2008, that the Sensex has closed above the 15000 mark. The 50-share Nifty closed at 4572.65, up 41.95 points, over the previous close. The rebound was led by Hindustan Unilever, which rose around 4%.
    The Sensex has now risen nearly 80% in less than three months, and has been among the best performing markets in the world.
    Brokers said the rally is being fuelled by hot money gushing in
from momentum players such as
hedge funds and other overseas
investors with a short-term view. Provisional data showed foreign institutional investors as having net bought shares worth Rs 464 crore. In May alone, they purchased about $4 billion.
    "There is too much liquidity still waiting on the sidelines, and also too much scepticism even now. Both these factors are driving the market higher," said Madhusudhan Kela, head-equities, Reliance Mutual Fund, the country's largest fund house in terms of assets managed. Strong eco data may add fuel to rally
"Iwould not chase prices, we are still holding around 10% of our portfolio in cash, waiting for suitable opportunities," he added.
    Market watchers said the large number of QIPs could take some fizz out of the rally, as a lot of money would be absorbed by the equity issuances. At the same time, they said share prices are unlikely to fall sharply because forthcoming economic data could point to a further improvement in the macro-environment. "The infrastructure index has a weight of 27% in the overall IIP (index of industrial production). Following the 2.3% contraction in IIP in March, we expect April industrial production data due on June 12 to come in at 3.3% YoY," said a note by Citigroup Global Markets to clients.

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