Words of caution from those who have seen it all

Fundmen who were witnesses to earlier Sensex peaks have proffered words of caution - about how the markets are looking expensive and how the bubble is going to bust sooner than later.

Though the predictions this time around have been muted, there are still a whisper or two about how the markets are overheated at this point. "That there is so much pessimism in the air is reason to be optimistic" says Abhay Aima, country head "" private banking, HDFC Bank.

Every time the market peaked "" whether it was the IPO boom in the early nineties, the Harshad Mehta scam in 1994, the tech boom or even the India Shining boom before the Lok Sabha elections in early 2004, markets peaked when Dalal Street was unanimously convinced about the longevity of the rally.

No market peak is never preceded by skeptisism. This time even as the Sensex surges past its life-time high of 7000, the common man on the street is viewing the markets with skeptisism. So there are reasons to believe that markets are not close to peaking.

According to Parag Parikh, chairman, Parag Parikh Financial Advisory Services who specialises in behavioural finance, the exhuberance is just about setting in.

"A lot of retail investors did not make money when the markets went up from 3000 to 6000. Several such investors who missed the rally are buying stocks without due attention to quality," says Parikh. As a fall out mid-caps have risen recklessly and now they are headed southwards.

Over the past week, even as the Sensex is heading higher on the strength of heavyweights like Reliance, Infosys and ONGC, mid-cap stocks are in the red angishing investors.

Clearly, the markets this time are on a firmer ground. While Sensex earnings have grown substantially over the years, interest rates have declined dramatically setting the podium well for foreign investors to exploit the growth opportunity over the past two years.

Several foreign funds have made hefty gains since they were early birds in this stock market rally. Retail investors have just about entered they race as is evident from the mutual fund collections in recent months. But for now, it is time to consolidate as gain have been uneven among different class of investors.