Sensex hits 20,000

After a three-day hiatus, FIIs became net buyers on Monday at Rs 688 crore.

The Sensex surged above 20,000 for the first time on Monday in tune with other Asian markets, as traders priced in another rate cut by the US Federal Reserve this week.

Expectations of a status quo in the Reserve Bank of India's monetary policy stance also contributed to the rally, which saw the index ending up 3.82 per cent, or 734.50 points, at 19,977.97, just off a high of 20,024.87 hit in late trade.

After a three-day hiatus, foreign institutional investors (FIIs) became net buyers on Monday at Rs 688 crore. The fact that there is no pressure on them to unwind their holdings through participatory notes was the buying trigger on Monday.

Analysts said the new Sebi norms on issuance of P-notes had been quite accommodative. As most P-notes linked to equities and issued by sub-accounts will be regularised as soon as they register as FIIs, foreign investors are under no pressure to unwind them even after 18 months. 
 

Top 5 Sensex gainers
	29/10/07 (Rs)	% change*
Larsen & Toubro	4277.45	10.33
HDFC	2813.05	9.63
BHEL	2612.10	7.42
ONGC	1238.60	7.15
HDFC Bank	1638.70	5.99
Top 5 Sensex losers
	29/10/07 (Rs)	% change*
Mah & Mah	796.35	-0.67
Bajaj Auto	2502.00	-0.54
Ranbaxy Labs	422.95	-0.52
Tata Motors	807.10	-0.41
Cipla	184.30	-0.38
* Over Previous day

The index has now risen 27.5 per cent since the US rate cut and almost 43 per cent "" or almost 6,000 points "" since its weakest close during the subprime crisis in August. The record-setting run has been driven by foreign funds, which have bought a net $17 billion of shares this year up to Friday.

The broader 50-share NSE index rose 3.57 per cent to 5,905.90 points, after hitting a record high of 5,922.50 during trade. In the broader market 1,551 gainers led 1,186 losers in a total volume of 470 million shares.

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FIIs hold on to PNs

"Healthy Q2 earnings and continued liquidity are helping the indices to new highs. Most of the overseas funds are coming into highly liquid large-cap stocks," said Motilal Oswal, chairman of Motilal Oswal Financial Services Ltd, a leading brokerage and financial services company.

"No doubt, we are in euphoric territory. But, if our infrastructure story clicks, the current valuations are justified," said Ashith Kampani, director, JM Financial Group. "Corporate earnings numbers have also met expectations," he added.

Shares in Reliance Industries, the biggest stock in the index, rose 5 per cent to Rs 2,827, propelling the company's market capitalisation to $104.2 billion. The market capitalisation of the Indian stock market is now $1.58 trillion, or Rs 62.39 trillion (Rs 1 trillion = Rs 1 lakh crore), after investor wealth swelled by Rs 1,76,492 crore on Monday.

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Makings of a bubble

The Sensex, trading at a price-to-earnings multiple of 26.32 times, appears still at reasonable levels compared to China's 50-plus levels, according to experts. But valuations are stretched compared to the price-to-earnings multiple of 18.52 times when the index crossed the 10,000-mark on February 6, 2006.