The excitement in the stock market is palpable as the BSE’s benchmark Sensex is once again on the verge of touching the 20,000 mark — which it had last done in January 2008. Even if one accepts that there is many a slip between the cup and the lip, the 20,000 mark is still very achievable. Uncertainty and unpredictability is the hallmark of the stock market, almost its mystical USP. There could also be a correction anytime, but the market will then go northwards again. It’s like waiting for a storm to pass and carrying on again! There are many characteristics that suggest caution about the scorching pace at which the Sensex has shot up: many are not impressed by this rise because it is fuelled more by liquidity rather than fundamentals; and second, it was mainly the large cap stocks that led the rally. The rise was not across the board. For instance, if you chart the movement of the Sensex from its recent low of 17,819 on August 31 to September 20, when it closed at 19,906, it is a rise of 11.7 per cent. In comparison, the BSE’s mid-cap stock index went up 8.5 per cent, and the small cap stock index rose 8.9 per cent in the same period. In addition, only 437 players accounted for 50 per cent of trading volumes. The point to remember is that India remains one of the best markets in the region, while China has been going down in the past 15 days. The foreign institutional investors (FIIs) have thus been hotfooting it to India while the going is good. In most of these FIIs’ home countries, interest rates have been at their lowest, and their markets too are not doing as well as ours. So the money will keep pouring in, and the party will continue. The FIIs have put in close to `2,000 crore per day — in the past five days this has amounted to around $2 billion. Indian domestic institutions have by and large been net sellers — to the tune of `2,095 crore this month.
But the flip side is that when these FIIs, for whatever reason, want to withdraw, the domestic market literally collapses because our domestic institutions do not possess the kind of financial muscle needed to keep the market at such high levels. Retail investors are yet to come into the market on any substantial scale — one reason perhaps could be that they have burnt their fingers time and again, the last time being in 2008 when the Sensex plunged to 8,000. You need to be a braveheart and a confirmed risk taker to participate in such a market — because no one has any idea when a "correction" will set in, wiping out those who do not have the capacity to bear substantial losses. Retail investors have over the years lost over `10,000 crore of hard earned money, and have not got a paise back. The case of Satyam is a major pointer to the kind of raw deal that investors get. The promoter had admitted to fraud and lakhs of investors lost several crores of rupees, but when an investors’ organisation tried to get compensation — initially from the National Consumers Redressal Forum and then the courts — it was told there was nothing in the law to help them.
Despite this, however, the market will relentlessly climb north and the party will continue — unless it is interrupted by some unforeseen calamity. India is a strong growth story and it is, after all, the second fastest growing economy in the world.