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Exhaustion after sprint?

Dec 1, 2001

After a sharp run up, bourses globally, seem to have taken a breather this weak. Investors pulled out of equity, taking time to re-evaluate the strength of the global economy. Back home not much was different. At higher levels investors seem to be jittery of the sustainability in the markets, which could have led to participants' booking profits. The rise from the bottom seems to be supported by the foreign institutional investors (FIIs), which pumped in Rs 8 bn in the month of October '01. However, institutional investors, considered to be among the savvier lot, have exited the markets last month. Net investments of FIIs in the month of November '01 were a meager Rs 38 m while mutual funds, as they have done for most of the year, pulled out Rs 3.3 bn. Not that it is a definitive indication; FIIs were investors through the year while markets fell, but does it mean that this category of better informed investors believe that the markets are fairly valued? And any further investments are likely to wait till there is more visibility on direction of the economy, sector reform policy and disinvestments?

It is largely the retail and momentum investors that seem to have built the November rally. Although levels are much lower compared to the heady days of 6k (BSE Sensex), this again seems to suggest that small investors have entered after markets picked up steam. As a word of caution and an indicator of operator activity, we ran a small check on the biggest gainers on the BSE (A-group) over the past month. Of the top 20 gainers, 6 belonged to the infamous K-10 portfolio.

There have been contrasting views on the agricultural sector with few believing that the packed depots of the Government are likely to result in poor crop realization adversely impacting growth in the sector. In our discussions with Mr. Mahesh Vyas, ED, Centre for Monitoring Indian Economy (CMIE), he opines that although a good crop season is good news for Corporate India one should not jump the gun. The rise in farm income to percolate into strong rural demand will depend on a series of good harvests.

  • Interview with Mahesh Vyas, CMIE

    Several participants are espousing the rally to not be fundamentally supported, which has led to shakiness among investors. It seems markets are likely to trade in band till there is more news for investors to make a firm decision.

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