Sensex: The feel-good factor

Mumbai: It was an event waiting to happen. We are seeing the sensex behaving like an Olympic Games sprinter. It had crossed the 5000 mark just a little while ago and was hurtling on all cylinders towards the 6000 mark. The target was to reach the 6000 mark by 31 December. It happened on the second of January, late just by two days.

The market sentiments, which drives the sensex is 'news' (and we have been hearing a lot of genuine news, sometime 'planted good news' and sometimes news based on rumours) — all fodder to the market players.

As for the economy, happy days are here again. The monsoons have done well and so has the economy. India's gross domestic product (GDP) growth rate, which once upon a time crawled, is now growing at a robust more than 7 per cent. On New Year's day, the news was out that the GDP growth for the second quarter of last year was a stunning 8.4 per cent. That has set the markets on fire in the last few days. And it is not just the sensex but also the Nifty, which is reaching record levels.

So far, it has been the foreign institutional investors (FIIs) who have been investing heavily in recent months. The FIIs are investing because they see value in the stocks. If an FII buys a stock at, say, Rs 6,000, it expects the stock to rise further and reach its full value at, say, Rs 6,300. At this stage the FII will have no further use of the stock and will have to perforce sell it.

To whom will the FII sell the stock? Other FIIs would have also perceived that this stock has reached its full value and will not buy. Here now the chances are that the small investor can be lured in as the fall guy. And we have seasoned brokers who can lead these investors into the honey trap by selling 'feel-good' stories.

If you were a broker whose customers' profiles compromises of guys with average intelligence, this is the story you will be selling them.

"Look Buddy! Observe! The main reason why our economy is supposed to do well is the monsoons. And also observe! The record GDP growth was for the second quarter of last year. The second quarter ends in September. The monsoons also end in September and the real effects of the monsoons are felt after that. Got it? So, it was not the monsoons responsible for the growth."

"Look beyond your nose buddy," you would have said. "The sensex has crossed 6000 without getting the stimulus of the after effects of the monsoons. Can't you see that it will now cross 7000 by February? This is the time to sell your wife's necklace and buy."

If there are few Doubting Thomases, you would further egg on: "Look at yesterday's business papers. The headlines are screaming: 'Exports post 14% growth in Nov; import surge continues.' The report said: "Further, the business dailies say: THE country's exports gained renewed momentum with export growth notching up a two-digit growth of close to 14 per cent in dollar terms in November 2003, even as the aggregate export growth during the first eight months of the current fiscal is hovering around 9 per cent, three percentage points below the 12 per cent target for 2003-04."

By now you can fairly expect that the Doubting Thomases left will be just a handful. You can now sell this line from a business daily: 'Stock trading interest gathers momentum in '03'. It read: "2003 saw a sharp surge in traded value on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE)."

"Between January and December, the traded value on the NSE rose 47 per cent to Rs 9.1 lakh crore, from that registered in 2002. On the BSE, the value was up 26 per cent to Rs 4.1 lakh crore."

"The NSE continues to gain market share at the cost of the BSE. In 2003, the NSE accounted for 69 per cent of the total traded value, as against 65 per cent recorded in 2002."

"Can't you see what you are missing out on, Bud? Every Tom, Dick, Harry and his aunt is into day trading and you are missing out on the most happening thing of the new century," you would say.

"But I have pledged my wife's necklace to a bank," Thomas would say.

"Then sell your house," you would say.