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Marching towards 21K

Discussion in 'Money Matters' started by pammor, Nov 11, 2007.

  1. pammor

    pammor Senior IL'ite

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    With the 20,000 mark conquered, the Sensex is looking at the 21,000 mark. Will that happen? And when? These are the questions investors are debating these days. The key question is whether the 21K milestone will be touched in 2007 or will we have to wait for 2008.Will the forces that pushed the Sensex to 20K and beyond still hold mettle? First, let us analyse the factors which led the historic flight.

    The increase in inflows from foreign institutional investors (FII) was a major contributor. The FIIs have always been a major force in the markets. With huge resources at their disposal, they have always been a force to reckon with. Their investment strategies affect the direction and momentum of the markets to a great extent. With reduced inflow restrictions, the FII money is freely flowing in the markets. The markets have been yielding good returns. The returns from the bourses have been much higher as compared to the other southeast Asian countries and the West. The economy has been doing well. The corporate results have exhibited strong growth.

    So the macroeconomic factors are favourable. Drawn by these factors, the FIIs have been pouring money into India like never before. Also, with the couple of consequent decreases in interest rates by the US Fed, the returns FIIs were getting on their overseas investments and in the US have gone down. So they are looking for markets like India to invest and park money in, and get good returns in the short to medium terms. In the bull run, investors are also making a fortune. With reduced alternate avenues for investments, they are also diverting their funds into the stock markets. The gains in taking risks with the stock markets seem to be attractive. The returns from the stock markets have been phenomenal.

    Remittances from NRIs into India have also increased manifold. The domestic cash reserve ratio (CRR) hike, the US Fed rate cut and domestic corporate results have influenced the markets. According to analysts, while volatility is here to stay, the market is growing well and will continue to be strong. The corporate sector results have been very good. Fundamentals definitely look very strong in the long run. Inflation is under control. GDP growth is good. Global weakening will drive more money to India. The 21K mark may look only 1,100 points away. But it would be a difficult level to reach. Most of the factors that pushed the Sensex have already worked to their extremes.

    The markets may be ruling at their peaks for the time being. In the long run, however, the 21K mark should not be difficult to achieve. Once that happens, it would give greater stability and maturity to the markets. According to some analysts, the valuations look overstretched in some sectors, which may not be sustainable in the long run. Retail investors should be cautious while entering the markets at the present levels. Some corrections may be expected in the days to come, especially after Diwali.

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