FII rally may propel Sensex towards 20K

MUMBAI: Indian stocks rose to a fresh 32-week high on Friday, fuelling expectations of the benchmark Sensex topping the 20,000 mark as early as next week on the back of abundant foreign fund inflows.



The Sensex had last touched the 20,000 mark over 32 months ago in January 2008, well before the start of the worst financial crisis that year marked by the collapse of storied-investment bank Lehman Brothers.



Over the last six months, foreign investors have been the primary drivers of the rally, buying at every given opportunity while local institutional investors, including mutual funds, have been offloading shares.



Provisional data on the websites of stock exchanges show that foreign funds have bought shares worth close to Rs 1,500 crore on a net basis on Friday alone. Dealers at foreign broking houses say a sizeable chunk of the money is coming through exchange-traded funds, which some view as hot money.



The 30-share Sensex hit a high of 19,639.18 intra-day, before settling at 19,594.75, up 177.26 points over Thursday's close. The 50-share Nifty closed at 5,884.95, up 56.25 points, or 1%, over the previous close. Stock markets not just in India but also in other parts of Asia, including Sri Lanka and Pakistan, have been going up, taking a lead from Wall Street.



Foreign funds have been buying into Indian stocks given the growth potential in an economy that is projected to grow at over 8.5% this fiscal, rather than investing in other major economies in the West where growth is faltering.



"The fundamentals of the economy are strong, but the market is going a bit too fast, fuelled by foreign money," said Nirmal Jain, chairman and managing director, IIFL. Mr Jain has a word of caution for those buying and selling shares. "Any event that could disrupt foreign fund flows could trigger a sharp correction and investors should brace for a choppy ride in the short term," he warned.



Investors, however, continue to place faith in second-line stocks, pushing up the BSE Midcap index by 1.4%. This despite the fact that many brokers have advised their clients to pare exposure to mid- and small-cap shares in a rapidly rising market, since these stocks take a steep hit when the market corrects.



"There is a feeling of euphoria when you look at the rise in the last three weeks. But on a calendar basis, the market is up 12-13%, which is not much," said Rashesh Shah, CMD, Edelweiss Capital.



Brokers say valuations are not exorbitant when compared to those at the peak of the bull run in early January 2008, when the Sensex was trading over 25 times one-year forward earnings. Yet the spate of share issuances by companies is a cause of worry, they say.
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