False Dawn On Dalal Street ; the Markets Have Gained Over 30 Per Cent Since the Crash of June, but There's Plenty to Suggest This Rally Isn't for Real.

Summary

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Sometime in the second week of May, Vijay Holkar (not his real name) made one of the biggest bloopers of his life: He invested all of Rs 10 lakh in a basket of blue-chip stocks like Hindalco, Reliance Energy, Ranbaxy Labs and Hero Honda. His blunder didn't lie in the stocks he picked; rather, it was the timing that was awful. The markets were at a lifetime high in the 12,600 range, and Holkar was clearly sold on the long-term India story. Unfortunately, global liquidity conditions tightened as interest rates shot up, foreign institutional investors (FIIs) pressed the sell trigger, and the benchmark Sensex slipped into a free fall, crashing 30 per cent by mid-June. Holkar was horrified, as not only had his investment shrunk in a matter of weeks, he also couldn't spot an exit route as the fall was so sharp and so sudden. Mercifully, after the bloodbath of June, the markets once again began their upward journey, and by last fortnight at the time of writing, the BSE's 30-share benchmark index was up 32 per cent. Holkar was relieved. But not for long. Reason? When he hunkered down to check the prices of the stocks he'd purchased, he realised they hadn't exactly kept pace with the Sensex uptrend. Hindalco was still almost 30 per cent off its peak price (the price at which Holkar had entered), Reliance Energy was off 28 per cent, and Ranbaxy 18 per cent. The Sensex may be up by a mile, but Holkar is still very much in the red.

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False Dawn On Dalal Street ; the Markets Have Gained Over 30 Per Cent Since the Crash of June, but There's Plenty to Suggest This Rally Isn't for Real.

Indeed, from the outside, the scenario appears buoyant: After crashing 30 per cent in mid-June, the Sensex would appear to be back to its winning ways. The revival seems to have trickled down through the market, what with the mid-cap and small-cap indices notching up 31 per cent gains since the June free fall. Every stock that constitutes the Sensex is up from its three-month low, with the it pack comprising Infosys Technologies and Satyam Computer Services registering a 40 per cent-plus appreciation in this period. What's more, Infosys and Satyam have run-up even higher than their mid-May prices, the period d...

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