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BSE Sensex: Who’s to blame?

May 23, 2000

In recent weeks many investment ‘gurus’ have come out in defence of technology stocks. Well, they should because they were the ones that egged on the markets in their irrational journey to sky high valuations in the first place. We at Equitymaster picked up two stocks – Infosys and Zee, both of which command a considerable weightage in the BSE Sensex, in an attempt to draw out a correlation with the Sensex. Of these two Zee, was added only earlier this year. Of course other Sensex stocks have also witnessed a decline, but their weightage is not as significant as of these two stocks. The results are for all to see.

Both the stocks seem to have contributed in no small measure to the slide on the bourses. Currently they account for 19% of the Sensex, as compared to well over 25% at the height of the boom in TMT stocks - implying that their valuations have declined faster than the average decline in other stocks.

The slide in the markets continues unabated. The reasons for this are many, some of which are rational (largely pertaining to technology stocks), some irrational (relation to some high value old and new economy stocks). In the near term there seem to be no positive news flowing in to put a stop to this. The next question - When will it be time to reenter these stocks? That there is actually a story in the tech stocks has not been denied. It is just that the valuations became unacceptable. When to reenter may be a very difficult question in a market as pessimistic as ours is. But in such a market, the time is likely to come sooner than later.

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