A year on, Black Monday is quite forgotten

The Bombay Stock Exchange (BSE) Sensex registers its biggest single-day fall of 564 points, and had to be shut twice to cool off things.

The fallout: A Rs 1,22,921 crore erosion in investor wealth in a day, the largest ever. The Sensex saw an intra-day movement of 842.37 points.

Cut to the present. The market has recovered splendidly from the Black Monday. The Sensex is up more than 2,000 points "" from 4505.16 on 17 May, 2004, to 6528.03 on Monday.

Investor wealth is up by Rs 7,69,018 crore in the same period. This includes money raised through some mega public issues.

So, is this rise a vote of confidence in the UPA government? Market participants do not think so.

"Black Monday was an aberration. On a longer term basis, the rise in the stock market has not been significant and Sensex valuations remain reasonable," said a dealer from a domestic brokerage house.

Incidentally, the Sensex is up by only 5.40 per cent from its previous all-time closing high (before Black Monday) of 6194.11 on 14 January, 2004.

In fact, the fall was artifical and the subsequent gain was mainly due to internal factors such as corporate performance and foreign fund inflows.

Going forward, it will be global events that may play a bigger role in giving direction to the market, analysts said.

Nandan Chakraborty, research head at Enam Securities, said: "The rise has been due to a combination of strong corporate performance as well as benign international factors. Going forward, in a scenario where high currency volatility is expected based on hints of a revaluation in the Chinese yuan, the only things constant are a shortage of resources and India's long-term demographic fundamentals."

The market continues to dance to the foreign institutional investors' (FIIs) tune, underscoring the fact that depth is still lacking. In fact, concerns over the FII outflows in the last one month and a general slowdown of fresh money is raising eyebrows.

Brokers said that there is a possibility that as a fallout of a changing global investment scenario, emerging markets including India, may get rerated by big investors.

However, analysts added that there could be some respite as recent data show that the US growth rate has hit a soft patch, which could impact inflationary expectations.

In this scenario, the extent of the US interest rate hikes may be capped. This would ensure that the FII money will continue to flow into emerging markets.