Bulls have fun for 10 days

Bulls returned home triumphant for the 10th session in a row on Monday, with benchmark indices touching new highs. As the quarterly earnings season gets underway in a few days, the burden of expectations will be weighing heavily on companies that have seen a spectacular run-up in their stock prices. Market observers feel that current valuations are already factoring in the best possible performance.

 

In a volatile session, the Sensex slumped to an intra-day low of 17,144.58 and then went on to hit a record of 17,425.34. It finally closed at 17,328.62, a gain of 37.52 points. The 50-share Nifty hit a new peak of 5089.30 before closing at 5,068.95, up 47.60 points.

 

"Though the advance tax numbers are good, the market has already discounted them. We are advising our clients to remain invested, however, buying should be avoided at these levels," says Arihant Capital Markets head-institutional business Anita Gandhi. She said European funds were heavy buyers in index stocks.

 

Dealers attributed the intra-day volatility mainly to fresh rumblings on the political front, which seem to indicate that a mid-term poll may not be too far off. While domestic funds continue to adopt a cautious stance and book profits at every opportunity, foreign funds remained aggressive buyers.

 

As per provisional data, overseas investors net bought Rs 1,721 crore worth of shares, while local mutual funds net sold Rs 930 crore worth of shares. While talk of expensive valuations are getting louder, some players feel it is inevitable given the strong liquidity in the system.

 

In its latest India strategy note, brokerage house Lehman Brothers has said: "The declining global interest rate environment coupled with strong flows could mean that the market remains expensive. We believe that the important trends are slower global growth, a strengthening rupee, correction in interest rates on the downside and political uncertainty in the run-up to the elections.

 

We think capex spending by corporates and spending on infrastructure are likely to remain strong, at least for the next 2-3 years." The immediate trigger for the market will be the third-quarter performance by key companies.

 

"Any upside from these levels will be contingent on the companies outperforming market expectations by a wide margin," Sharekhan senior VP and head of research Sandeep Nanda said. He is expecting an average growth of 20% in companies that are part of the Sensex. He is of the view that sustained foreign fund flows and a cut in interest rates could deflect the attention from corporate performance in case they are below expectations.