The Hindu Business Line : Quality market at 10K

IT IS FITTING that the Sensex should sweep past the 10,000 mark in a bull market that is notable for the quality of stocks on offer and of the market systems. Investors have never had it so good. In the past, several bullish phases dating back to the mid-1980s came apart in double quick time. Broker manipulations, corporate or investor greed, promoter-broker nexus and lack of transparency on the part of both corporate India and stock exchanges had led to extravagantly-valued bull markets that lasted brief periods. Investors lost confidence, a key factor that explains why the share of household savings invested in equities continues to remain at an insignificant level.

The road to 10K has, however, not led to outlandish valuation levels as buoyancy in corporate numbers over a three-year period has provided the perfect support for a rise in values in this liquidity-driven bull market. There has been a marked expansion in the universe of quality stocks over the past three years. The expanding depth — marked by the close-to-100 large-cap stocks, emergence of new sectors and a wider mid-cap stocks' space — has minimised market risks and made India more attractive to foreign investors. This process has also neatly coincided with robust addition to the number of foreign institutional investors registered. The market now provides room for diverse investment styles; this is a major positive, as it has the potential to deepen the market over the longer term.

Even as the limelight is on the FII interest in India, rising confidence in mutual funds and stock price levels, the effect that the quality of trading and settlement systems has had on investor confidence rarely gets the credit. Courtesy the National Stock Exchange, which played a pioneering role in creating an electronic market, the BSE and SEBI, India has become more attractive for FIIs. Markets have never before been as safe for investors as is the case now; they have the benefit of trading and settlement systems which are so advanced, that these have become global benchmarks. However, should FII flows remain robust and the market moves beyond 10K, stock valuations will increasingly veer away from fundamentals, as has been the experience in several countries.

Corporate India will have an increasingly tough task to meet market expectations, at least over the next couple of years. In this backdrop, having experienced a breathtaking bull market over the past three years, investors have to moderate their expectations, take a long-term approach and also be prepared for sharp corrective phases. The most worrying trend is the plethora of companies raising funds in overseas markets, several of them doing so without a credible business requirement. As this exercise is accompanied by greedy pricing trends in several cases, this has the potential to undermine investor confidence. If big negative surprises are to be avoided, an improvement in the quality of disclosures is the way out. SEBI has the tough task of getting this done.

More Stories on : Editorial | Stock Markets | Economy

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Quality market at 10K

Real shine must come from farm sector

Freedom of expression or "unnecessary offence"?

Managing the professional — Styles to suit situations

Hip, hip, hooray!

Mount 10,000 and Reliance

Is the Sensex in the same league as the Dow?

Doing business in Hindi