c










 

At the start of the calendar year 2010, Sensex was perched at 17,500 levels. Since then, inflows
from FIIs has crossed the magical 





 ± an achievement by no means less
than a gold medal for the Indian stock markets and clearly a sign of confidence among the global
funds in the India Growth story. This gush of investment wind has taken the benchmark Sensex
past 20,000 levels ± which sums up to a decent 15% rally since the start of the year. Further, as
more and more emerging markets ± such as Thailand, Brazil and South Korea ± impose curbs on
cheap overseas funds flow from developed nations; a substantial chunk of this flood of money
could find its way into the Indian markets. This sharp flow of money could render the Indian
currency more volatile in the light of increased inflows and outgo of capital at some point of time
in future.

Investors must not lose sight of the crucial a
 

which says ± whatever goes up, has to
come down! Moreover, the higher the markets move northward, steeper would be the fall on the
downside. Specifically, disappointing IIP data for the month of August that were released
recently could well be a cautionary sign for the investors to remain on their toes going forward.

After recording strong industrial output growth of 15.2% in July, a fall in IIP numbers to just
5.9% (the lowest in past 15 months) has surprised the analysts ± questioning the sustainability of
the current bout of recovery.

Further, the sharp fluctuations in the IIP numbers over the last few months ± 15.2% in April,
5.8% in June, 15.2% in July and again 5.9% in August ± has cast a doubt on the veracity and
reliability of the numbers. However, close observers of the key industrial data has pointed out
that the volatility in industrial growth rates has been driven by the capital goods segment, which
grew by 72% in July and contracted by 2.6% in August.

Additionally, equity analysts have expressed concerns about the heady levels of benchmark
indices that have witnessed a sharp run-up over the last couple of months ± powered by market
euphoria and the prevailing bout of liquidity wave (›

›
 
    
 ). Concerns are also being raised about the market¶s ability to absorb the mega-IPO
offering from the state-owned Coal India Ltd starting from October 18.

At current levels, markets have already factored in most of the positives including good monsoon
and better fiscal scenario of the domestic economy. However, the earnings season ± which is
round the corner ± might prove to be a good reality check to test the integrity and strength of the
markets over the next few weeks. Thus, for once, the fundamentals and earning prospects might
try to over-whelm the liquidity momentum and excess euphoria prevailing in the markets.

    
     

                
  

     


 


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