A renewed burst of purchases by foreign funds pushed major stock indices to a 15-month high on Monday, leading to concerns that the market has run far ahead of itself.The Sensex of the Bombay Stock Exchange and the National Stock Exchange’s Nifty rose by over 2% on Monday and have more than doubled in the past six months, causing market watchers to wonder if stock prices have discounted the economic recovery too quickly. Many fund managers privately voiced concerns that valuations are slowly expanding into a bubble, but added that strong liquidity and a positive mood in world markets could push stock prices higher for some more time.
“In the short term, we could see the market rising further because there is lot of cash on the sidelines, awaiting a correction,” said Nilesh Shah, chief investment officer and deputy MD, ICICI Prudential AMC. “But unless this cash is deployed in the market, we are unlikely to see any deep corrections.”
The 30-share Sensex closed at 16,016.32, or 2.1% higher, and the 50-share Nifty gained 2.2% to 4782.90. Provisional data showed foreign institutional investors net bought Rs 1,060 crore worth shares on Monday and domestic institutions Rs 150 crore.
The mood in world markets was upbeat following a statement over the weekend by the G-20 grouping of major economies that financial markets were stabilising and that the global economy was improving. India was the best performer in Asia while most European markets gained between 1% and 2%. “Possibility of earnings upgrades and hopes of incremental reforms could further strengthen liquidity,” said Navneet Munot, chief investment officer of SBI Mutual Fund, which managed about Rs 35,000 crore in assets.
Dealers said market operators took advantage of the holiday in US markets today to ramp up stock prices. Despite rising stock prices, turnover has remained on the lower side, underscoring the cautious mood among players. On Monday, traded turnover in the derivatives segment was about Rs 57,000 crore while in the cash market it was Rs 23,000 crore.
Investors continued to lap up second line shares, with gainers outnumbering losers nearly 4:1 on the BSE. “It is purely a liquidity-driven rally,” said Rashesh Shah, CMD, Edelweiss Capital. “Maybe, when the quarterly numbers start coming in next month, investors could get a bit more selective,” he added. Realty stocks were the star performers, with the BSE realty index gaining over 5%. Metal, banking and automobile stocks, too, witnessed good demand while investors shunned FMCG and IT shares.
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