Capitalisation of market soars 23pc in just a month

ON November 2, the 30-share Bombay Stock Exchange (BSE) index stood at 2,612.25. It had been creeping up gradually from a low of 2,082.38, registered on July 20. But while it did touch a high of 2,807.59 on September 14, there was a subsequent drop - and few expected that it would scale the 3,000-point barrier before the year was out.

Amazingly, on December 1, the index zoomed to 3,292.85, having fattened up by 200 points in just two trading sessions. Not even the adverse sentiment related to the death of J.R.D. Tata, the doyen of Indian industry, could have any real impact on the index, which dipped by the week-end to 3,219.23.

The quotations of almost all Tata group companies remained reasonably firm, despite the Cassandras predicting doom now that the steadying influence of the 89-year-old chairman emeritus had gone.

In exactly one month, the index improved by more than 650 points, and only profit-taking and bull liquidation prevented further gains on December 3.

The price-earnings ratio improved from 31.55 to an extremely healthy 39.79, and market capitalisation rose by 23 per cent in about a month.

The cynics may wonder whether the recent boom has been fuelled by another scam.

The fact is that while the basic fundamentals of the economy have indeed improved because of the recent liberalisation measures, and interest rates have come down, the bull charge has been headed by foreign financial institutions (FIIs).

A handful of the 108 FIIs registered with the Securities and Exchange Board of India (SEBI) have brought heavy funds into the secondary market.

Again, there is the phenomenon of too much money chasing too few stocks.

Even the primary market seems recharged, with a number of companies seeking to raise money from the public - and having their issues fully subscribed.

It is significant that the sharpest gains have been made by counters in the specified forward list, while cash shares have either remained stagnant or have shown modest gains.

This reveals that the FIIs have been restricting their purchases to blue chips, on whose financial health their research is up to date.

The amount brought into the Indian stock market since FIIs were permitted portfolio investment has been estimated by SEBI at US$650 million. Market sources feel the figure is closer to $750 million.

Even presuming the SEBI estimate is more accurate, $240 million, 37 per cent of the total, has come in November alone.

That explains why the BSE index has registered such sharp upward movement.

While FIIs have been investing directly in the market through local brokers, a substantial amount has also come in through the offshore country funds.

For instance, the Indian Investment Company, floated by Foreign Colonial, and listed in Luxembourg, has mopped up $150 million, of which around $135 million is understood to have been invested in the Indian secondary market between October 25 and November 5.

The managers of the Indian Opportunities Fund, which collected $100 million, have also invested nearly 90 per cent.

Another $25 million has been brought in by Barclays de Zoete Wedd, through its Bombay Fund.

Thus, from just these three funds, a whopping $275 million has been pushed into the secondary market.