FII-induced high: Sensex past 19,000

FII-induced high: Sensexpast19,000

Mumbai: Four trading days after it crossed 18,000, Sensex, the benchmark index of the Bombay Stock Exchange, crossed 19,000 on the back of continued investments by foreign funds.

The Sensex has now gained 36% in 38 trading sessions beginning 22 August; it gained 40% in all of 2005 and 46% in 2006—and those gains came at much lower levels. In 17 sessions, the index has added more than 3,000 points.

Foreign institutional investors (FIIs) see the Indian equity market as a safe haven to invest their money. Since January, they have put $16.5 billion (Rs64,845 crore) into Indian equities; in the past three weeks alone, they have invested more than $6.5 billion.

According to a Citigroup research report released on Monday, the percentage of money inflow to India-focused funds has continued to rise against a decrease in the pace of inflows into China and Hong Kong. “Inflows to global funds have been lagging behind" those into markets such as India, said this report. “The investors’ risk appetite is back," said Elaine Chu, the Hong Kong-based regional equities strategist at Citigroup.

The report also said that about 19% of inflows into Asian funds went to those focused on the Indian and Korean markets, even as the inflow into Asian funds remained above $2 billion for the third consecutive week.

“The predictability and visibility is highest in the Indian capital market among all Asian and other emerging markets," said Gopal Agrawal, a senior fund manager at Mirae Asset Global Investments (India), the domestic arm of the Korean financial services firm.

That did not necessarily mean Indian equities were not overvalued, added Agrawal.

“The market is definitely expensive at this level. There is a big risk that foreign investors are now buying Indian equities for interest rate arbitrage," Agrawal said.

However, other analysts said the market could continue to rise. “We are expecting another quick 1,000 point gain," said Harjit Singh Sethi, chief executive of Mumbai-based Almondz Capital Markets Pvt. Ltd. “It is not over till the inflow of money slows down. At the current pace, we are betting (on) another 1,000 point run up to 20,000, in less than a week’s time," added Sethi, whose clients include many large domestic mutual fund houses.

“However, domestic mutual funds are mostly booking profits at these levels," he said.

“It is likely that Sensex may soar past 20,000 levels in the short-term," said Sandeep Nanda, vice-president of equity research at Sharekhan, the online brokerage firm.

Nanda said it is impossible for the market to continue rising at this pace, but added that Diwali, the Hindu festival dedicated to the goddess of wealth that comes in early November and some large initial public offers waiting to open, could continue to contribute to an increase.

The Sensex is bound to cool down after the end of this results season, said Ashish Maheswari, chief executive of Mumbai-based equity brokerage Arihant Capital.

“We expect vertical falls after each sharp gain. The index will face major resistance as it gets near the 20,000-point mark. There is definitely a psychological barrier to be broken," he said.