Market rally yet to reach cash scrips

“If shares of 6,000 companies registered only Rs 9 crore business, I don’t think it is a real rally in Sensex. Speculators are driving up shares of A group companies,” said a broker, pointing to the huge volumes in the A group.

It’s true that foreigninstitutional investors (FIIs) were major buyers in the market in the last few days — they bought scrips worth Rs 300 crore on Thursday and Friday. But market circles say that speculators are using the strategy of FIIs are back’ to build up positions. Seeing the FII buying’ news, local speculators are jumping onto the band-wagon. This has given rise to the million dollar question: is the bull rally for real?

According to senior brokers, over 50 per cent of the volume in the A group of the BSE is accounted by five scrips (Satyam Computers, ITC, Pentafour, Reliance and SBI). These five scrips — now the favourite counters of speculators — registered a volume of over Rs 1,000 crore on Friday. This means that hundreds of dud stocks in the B2 group are still languishing below the par value of Rs 10 with hardly any trading.

However, one school of thought feels that most of the scrips in the B2 group don’t deserve to be traded at all on the stock market. Some of them have disappeared after collecting money,some are working at losses and many have not even completed the projects. This is not the case with companies in the A group.

“Agreed, other Asian markets are bullish. The government has issued ordinances for the Patents Bills, buyback of shares and so on. Such moves are not enough to bring small investors back into the market. The government needs to take strong measures for the revival of the economy and markets. Industrial growth and exports are still under pressure. GDP (gross domestic product) growth has fallen. Nobody talks about a rise in corporate profits in view of the general slackness in demand and high input costs,” said an institutional broker.

If the government follows up with strong measures, as was evident in the case of patents bill and buyback, in the coming days, the market rally is likely to sustain for more time. This will lead to a change in the market sentiment and the Sensex might cross the 1998-high level of 4322 very soon. But once-bitten-twice shy investors need to beconvinced. “There is enough money in the system. The government was recently forced to cut the interest rates on small saving schemes due to heavy inflows. This can come to the markets,” brokers said.