Jan 5, 2000|
BSE Sensex gains 9.6% in two trading sessions
The markets are on a roll. The BSE Sensex, the prime market indicator, has gained a fantastic 9.6% in the first two trading sessions of the New Year. The NSE Nifty has gained 10.6% during the same period.
The euphoric buying interest has been justified on the grounds that there has been a pick up in foreign institutional investment (over US$ 370 m in December). Also, a big negative in recent months, the Y2K concerns have proved to be misplaced. Then there is optimism from the fact that the present government is keen on pursing the second round of reforms. All these factors, coupled with the booming US stock markets have pushed Indian markets into a state of frenzy.
In the Indian context, however, concerns remain pertaining to the underlying fundamentals of the economy and the sustainability of the recovery process. The fiscal deficit continues to be worrisome. Then there are inflationary pressures generated by higher oil prices (and also year on year effect on food prices) and stickiness of high interest rates. Among the other concerns are the burgeoning revenue expenditure and the delay in disinvestment process.
Other concerns emanate from the sharp rise in net outstanding positions (long) on the Bombay Stock Exchange (currently at Rs 37 bn). In case the market view were to turn pessimistic a rush to close these positions could bring the markets under severe selling pressure.
Whether the Indian bourses will continue to record fantastic gains as yet remains to be seen. In the meantime factors relating to the deteriorating economic fundamentals of the country and the possibility of a slowdown in the US economy (a decline in US stock market indices) will continue to be major sources of concern.
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