Cut to other sectors, and the picture is similar. But sector preferences have changed rapidly. Two-wheelers, engineering, tractors, big banks such as SBI and HDFC Bank, small banks such as UTI Bank and Indian Overseas Bank, auto ancillaries, sugar, fertilisers, second and third-rung steel stocks such as Essar Steel, Ispat Industries and SAIL, and cash-rich companies such as Raymond and Indian Rayon are among the prominent themes that attracted investor interest.

The inflow of close to $875 million from foreign institutional investors in May and June has led to interest and price gains in such highly liquid stocks as GAIL, HPCL, SBI, Reliance Industries, Grasim and HDFC.

Well-orchestrated too

Price movements have also shown signs of being well orchestrated. Stocks such as Matrix Labs, Divi's Labs, UTI Bank and Indian Rayon witnessed sharp jumps. In Matrix, trading has remained frozen on many a day due to lack of sellers. Divi's, at about Rs 580, has hardly shown any weakness, despite a four-fold jump since listing. There are other moves covering a range of stocks in engineering, second- and third-line pharma, steel, auto ancillaries and textiles, which suggests sustained operator-driven activity.

Interest has spread in a phased manner from the top-rung stock in any sector to ones with a modest track record. This suggests that smart money is moving in and out of select stocks. Such trends usually attract a set of investors who may enter the rally late and be left holding the baby.

The ease with which day trading is now possible has also strengthened this trend. Yes, across these stocks, there have been good money making opportunities for traders and investors alike.

It is a question of getting in and out of stocks at the right time. If 1999-2000 was anything to go by, the prime operators tend to do this without much trouble. Promoters and institutional investors who act in tandem with them also invariably exit when the going is good. This is not, however, a game for the risk-averse.

Not so prominent

If the effects of well-orchestrated efforts at price-ramping are not as clear now as they were in 1999-2000, the reason is simple. In 1999-2000, the interest was just in tech stocks.

The liquidity, day trading and speculative activity — the facility to buy on Monday and settle by Friday on the BSE (Wednesday-Tuesday on the NSE) came in handy — were then centered on not more than 50 stocks at the most. This led to price spurts of a kind not seen even in the 1991-1992 boom, when Harshad Mehta held sway, and the market was awash with funds from the banking system.

Now the interest is spread across a much larger number of stocks spanning a sizeable number of sectors as well. As a result, barring stocks such as Divi's, Matrix and IPCA Labs, the price spurts appear modest in comparison to the 1999-2000 period.

But this is a phase of the market in which investors need to be careful, as liquidity-driven rallies can come to a grinding halt.

Behind the rally

The uptrend in the last two months has been helped by a surge in the FII flows following a tepid start to 2003; $875 million has come in. After 1996, when FII flows hit an all-time high of $3 billion, the bulk of the inflows has come in over just two or three months, with nominal levels over the rest of the year.

Their trading activity, however, continues at a hectic pace. In the past, whenever FII flows flattened out, markets moved into a sluggish mode. The absence of FII selling has been critical to prevent any downtrend of note. Their buying, on the contrary, does not always lead to a broad-based rally.

This time, however, their buying helped broadbase the rally from mid-cap to large-cap stocks. Net FII inflows have generally been weak in August-November in recent years. If this trend hold out this year, too, it could take much of the steam out of the rally. And this may not be bad, after all.

A market that consolidates gradually is better for investors than short bullish phases of the 1990s kind, which were based on tenuous grounds.

The downside risk — quite a live prospect — is cushioned by the continuing firm trends in industrial growth, a monsoon that appears set to deliver the goods, unlike in 2002, and lower interest rates. But the prime element now is liquidity. Once that dries up, sluggish trends seem a likely outcome.

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