The Hindu : Opinion / Editorials : A new high in stock markets

Online edition of India's National Newspaper
Tuesday, Jun 21, 2005

Opinion

Opinion - Editorials

A new high in stock markets

The news of an amicable settlement between the Ambani brothers was announced last Saturday, a market holiday. It was perhaps inevitable that on Monday there would be a renewed interest in the Reliance stocks and because of the pivotal position the group's shares have come to occupy in the stock markets' psyche, in the broader indices as well. On Friday the benchmark share indices had closed strongly, with the Sensex recording a 124 point gain over the week to close at 6906. In the wake of the settlement there was intense speculation as to when and how soon the Sensex, which had already scaled several peaks in the current bull run, would breach the psychologically important mark of 7000. Although it did touch 7000 very briefly during intra-day trading on Monday, intense volatility in prices and the confusing signals from other market segments made even short-term predictions of market behaviour very complex. With the index closing at 6985 on Monday, it is not so much the setting up of new records as the sustainability of the market indices at these high levels that need to be examined.

Also, while the Reliance factor is extremely relevant, it has not been the only determinant of the market's movement even in the euphoric period immediately after the settlement. This was brought home on Monday when the Government announced an increase in petrol and diesel prices. Stocks of oil companies perked up immediately. However, as with Reliance, the initial favourable reaction was tempered with the realisation that there are still a number of imponderables. Global oil prices climbed to a record $ 59 a barrel. Besides, a hike in the prices of transportation fuels, even if it was not up to their expectations, is a positive factor for the oil companies and their shareholders. However, for the economy as a whole the cascading effects will be reflected in the inflation figures, after a lag. The impact of the Reliance settlement on the stock market behaviour is also not so clear-cut as was made out. Reliance Industries has been accorded a large weight in the BSE index. Its rise naturally pushed the index up. However analysts also attach great significance to two companies in the Anil Ambani group. Reliance Energy has been the real star on Monday. Reliance Infocomm, now unlisted, may command a large valuation after its expected floatation. Thus while the settlement at Reliance has been a positive news for the markets, attention has already shifted to the performance of the separate companies, whether individually they will do better than as a group. Not to be forgotten, the Indian stock markets still suffer from a number of deficiencies. Extreme volatility in prices, the hold that institutional investors, particularly overseas ones have had and the rather shallow penetration by mutual funds are some of the shortcomings that need to be addressed.

Printer friendly page
Send this article to Friends by E-Mail

Opinion

News Update

Stories in this Section

Accusations that are over the top

A new high in stock markets

Central Asia — a region destabilised

Tsunami leaves a world of ghosts'

Murmurs over Andhra Pradesh move on quotas

"Involve Kashmiris in the peace process"