Big Bang Theory Reinvented

This was not all. On the previous evening, the BSE benchmark had closed 370 points higher at 5384.66 points-the second largest single-day jump in history. Within the first 20 minutes of the new year’s first trading day, volumes had touched Rs 900 crore. At the end of the day, a record 706 scrips hit the circuit-breakers. Over 75 per cent of traded scrips recorded gains. Buyers thronged the market and unexecuted orders on the BSE and the NSE touched Rs 1,000 crore. In these two days, market capitalisation on the BSE crossed a staggering Rs 10 trillion.

Is this buoyancy for real or is it just a flash in the pan which will lead to chaos and reorder? Especially when one remembers that post-’92, every major bull run has often ended in a whimper. Perhaps to prove the truth in this, on January 5, the Sensex fell by 134 points after rallying 600 points earlier in the day. The next day, the Sensex recovered by 65 points but only after heavy selling in technology stocks following the NASDAQ dip.

That didn’t depress market players though. Says U.R. Bhat, chief investment officer, Jardine Fleming Asset Management Company: "We did expect a rise of up to 200 points if there were no millennium bug glitches." An upbeat Harish Mehta, chairman and managing-director, Onward Group, whose group company Onward Technologies has been making waves on the stock exchange, says very predictably that "this buoyancy will continue for years". If the US market has been growing for the past five years with no signs of slowing down, why not the Indian, goes the logic.

But is the dizzy growth an indicator of good times forever? Market players say yes. For one, consolidation in sectors like cement and pharmaceuticals is on the rise. Smaller players are getting out of business while long-term players are beefing themselves up by buying out companies or selling out non-strategic businesses. "All this is leading to a more transparent and reliable market," says Shitin Desai, vice-president and managing-director, DSP Merrill Lynch. For another, the performance is well-rounded. Pharmaceuticals, cyclicals- especially commodity stocks-fmcgs...all fared well. Even old favourites with Indian investors like Reliance Industries Ltd (RIL) and SBI, which had been junked in favour of the infotechies some time ago, have bounced back noticeably. That can only be good. Ridham Desai, vice-president and India strategist, JM Morgan Stanley Securities, explains that the rising of the market on a broad base indicates its strength and maturity. For, as long as the fundamentals remain sound, there is no need to worry over a sudden sharp fall.

The third factor is the SEBI boning up on vigilance. On its advice, the BSE and NSE are imposing additional security-specific margins on certain scrips and reducing exposures to curtail volatility in the market. With an improved macro-economic picture, including better domestic liquidity and steady interest rates forming the backdrop, investing obviously has become a much safer exercise.

Last week, thus, saw the emerging of some new trends even as established trends were asserted. Infotech, as expected, ruled the roost in the first half of the week. On Monday, N.R. Narayana Murthy, chairman and CEO of Infosys Technologies, joined India’s Billionaire Club as his scrip touched Rs 16,910 and beat the formidable numero uno, Hindustan Lever, in terms of weight in the Sensex. Infosys dethroned the FMCG giant which had, until then, enjoyed a five-year run at the top, thanks to the scrip’s market capitalisation. Even so, such skyrocketing figures appear scary to the sceptic who wonders whether the earnings will be commensurate with the investments. As if voicing their fears, Wednesday saw Infosys correcting itself to Rs 15,557 as the NASDAQ slip sliced into Sensex gains. Market experts, however, reiterate that such fears are inescapable as traditional valuation norms are displaced. "The new digital economy is reconstructing the business model," says Onward’s Mehta. "And there is no place for the antics of sceptics, politicians or bureaucrats," he adds. The services sector already accounts for a third of India’s GDP and that has to reflect in the markets. "We are in the nascent stages of a technology-driven industry, so the scope of growth is huge," explains Mehta.

Points out Shitin Desai: "Even in traditional times, there have been manufacturing companies briskly traded long before their infrastructure was up and profits or earnings were in sight." A case in point is Reliance Petroleum. Ridham Desai goes a step ahead when he says that "valuations are not yet so expensive". The Sensex is only about 14 per cent higher than the ‘94 summit, he estimates, even as earnings have grown more than 60 per cent in the same period.

The one danger lies in differentiating a good scrip from a bad one in the melee. Queuing up to buy any IT scrip is definitely not the way to get rich quick. What an investor needs is a good advisor or route his investment through a mutual fund. Even so, there is a tremendous scope for individual investment. In 1992 and 1994, the retail investor had 23 per cent of his savings in equities. Today it stands at a mere 5 per cent. Still, market experts can’t yet put a finger on when the retail investor will make his entry.

In the first two days of the week, in fact, a large part of trading was born of individual investors and day traders. The institutions were conspicuous by their limited presence on the bourse. However, market watchers see them becoming a force soon enough. Bhat places FII inflow around $300-400 million, an expectation that fuelled the spectacular rally as people went for whatever was available.

That situation may not continue. Market watchers see some investors cutting their positions by half as they await further improved performance. Some others are waiting for the big money from domestic and foreign institutions. Thursday, in fact, saw them increasing their role to help the exchanges recover. If this money doesn’t come within a week or two, there may be a bit of nervousness and consequent sell-offs, but certainly no disaster. On Thursday, fuelled by the rebound on tech-strong NASDAQ, FIIS along with punters unloaded technology scrips heavily and loaded up on economy stocks like Grasim, L&T, RIL, SBI, Telco, MTNL and others.

One reason for the FII’s increasing role, explains Ridham Desai, is that foreign funds were earlier benchmarked on indices which didn’t have an emerging market weight. However, now they are benchmarked on the All Country World Index (acwi) which has a 9 per cent weight on the emerging markets. So the foreign funds will continue to come. Even the impending oil price hike, says Ridham Desai, will not affect the market because the petroleum sector is doing well and will be able to get around it successfully. He remains bullish on the market with a focus on technology companies and cyclicals.

The upshot is that the Sensex is expected to remain buoyant till the Union budget on February 29. Definitely till the budget. Of course, there will always be natural and man-made disasters, there will always be budgets, oil price hikes and unscrupulous players in the bourses but such factors are reducing in their impact. For most believers, therefore, the party has begun. Non-believers be damned.