BOUNCEBACK SEASON NIFTY KISSES 5000

NIFTY, the favourite 50-share index used by traders to bet on the future, briefly flirted with the psychological 5,000 mark in a global rally of stocks on hopes that the worst global recession since the Great Depression is coming to an end. But the 68% surge this year has also made some believe that gains from here may be limited if the economic and earnings data do not catch up.      The S&P CNX Nifty rose to a high of 5003.05 before closing 0.14% higher at 4965.55. The MSCI World Index has risen 64% since March 9 on signs that the global economy is recovering, following unprecedented infusion of money by governments.      "The momentum that we are seeing right now is extremely strong and is being driven by external as well as domestic liquidity," says Arindam Ghosh, CEO, Mirae Asset Management. The broadly followed Sensex rose 0.2% to end at 16,711.11.      Stocks closed at a new 16-month high after the stimulus packages of the Manmohan Singh government and recordlow interest rates led to higher sales of cars, motorcycles and cement. Corporates are also paying higher advance tax, indicating that they are selling more and that their profits are set to rise than a year earlier. Investors worldwide are veering to the view that the global economy has finally shaken off the fetters of recession .      Housing starts — the number of privately-owned homes on which construction has started — in the US rose by 1.5% in August, the highest gain in nine months, supporting Fed governor Ben Bernanke's view that the recession was nearing an end.      India's industrial output, as measured by the index of industrial production (IIP), rose 6.8% in July, on the heels of an 8.2% rise the month before drawing overseas investors too.      So far in 2009, foreign institutional investors have net invested close to $9 billion in Indian equities, and domestic mutual funds have pumped in around $0.8 billion. But valuations are worrying some. "Logic would dictate that the market should wait for earnings to catch up, and for valuations to start looking reasonable again," said Hugh Young, MD, Aberdeen AMC.  COMMENT RALLY HAS REAL LEGS  WITH THE NIFTY touching 5000, some investors are beginning to ask if the Indian stock market rally, fuelled by almost $9 billion of FII money this year, has been too fast and too furious. In the absence of meaningful upgrades in earnings expectations, stocks do look pricey. That said, unlike most emerging markets that are only riding the wave of liquidity, the rally here has had real legs to stand on. While the poll outcome was a bonanza for investors, the rise in industry output in June & July were also pleasant surprises. And the strength in advance tax kitty shows the fiscal balance may not turn out to be much worse than anticipated unless oil prices shoot up. A late monsoon revival may help ease food inflation after the festivals. Finally, other emerging markets have seen much bigger rallies. The 93% gain in dollar terms in the Nifty in six months makes the Indian index only the world's 19th bestperforming market in this period. The key risk now is a sudden return of volatility. But with the US indicators suggesting a strong recovery, it's hard to see a trigger for a meltdown in global equities.'Fundamentals strong here'  INDIAN macro fundamentals are far superior compared to other emerging markets, even China. Therefore, the flow of foreign capital will continue," said Nirmal Jain, chairman and managing director, India Infoline.      But he cautions that the market would now consolidate for some time, as most of the positive developments have already been factored in. "The Nifty could move in a band between 4,800-5,200," he said.      On a 12-month trailing basis, the 30-share Sensex is quoting at a price-earnings (P/E) ratio of less than 22. In January last year, just before the down trend, the Sensex P/E ratio was 29.      Key Indian indices have more than doubled in the past six months. Yet, strong liquidity and reduced investment options may still force some investors to buy stocks.      "If you look at domestic liquidity, I think today alternate investment options for investors have narrowed down considerably, and so much of the money is directly coming into the stock market," Mirae's Ghosh said.