Reasons behind Sensex Surge ?

Stock market behavior is primarily driven by market sentiments. Both the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) indices have surged and reached dizzy heights on the back of Foreign Institutional Investors(FIIs) have invested a record $23.18 billion in the year

Stock market behavior is primarily driven by market sentiments. Both the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) indices have surged and reached dizzy heights on the back of Foreign Institutional Investors(FIIs) have invested a record $23.18 billion in the year. However, during the quarter ended September 30, 2010 alone, more than 50 percent of current year's inflows at $12.55 billion have been pumped into the market. The continuous inflow of the greenback has resulted in substantial appreciation in the Rupee.

Where is the FII funds invested in the Market ?

TheBombay Sensitive Index, Sensex, comprises of 30 scrips. The scrips and the sector to which it relates is given below :

BSE 30 Index - Sensex Company list

BSE 30 Index - Sensex Company list

ACC Ltd. Housing
Bharat Heavy Electricals Ltd. Capital Goods
Bharti Airtel Ltd. Telecom
DLF Ltd. Housing
Grasim Industries Ltd. Diversified
HDFC Finance
HDFC Bank Ltd. Finance
Hindalco Industries Ltd. Metal,Metal Products & Mining
Hindustan Unilever Ltd. FMCG
ICICI Bank Ltd. Finance
Infosys Technologies Ltd. Information Technology
Jaiprakash Associates Ltd. Housing
Larsen & Toubro Limited Capital Goods
Mahindra & Mahindra Ltd. Transport Equipments
Maruti Suzuki India Ltd. Transport Equipments
NTPC Ltd. Power
ONGC Ltd. Oil & Gas
Ranbaxy Laboratories Ltd. Healthcare
Reliance Communications Limited Telecom
Reliance Industries Ltd. Oil & Gas
Reliance Infrastructure Ltd. Power
Satyam Computer Services Ltd. Information Technology
State Bank of India Finance
Sterlite Industries (India) Ltd. Metal,Metal Products & Mining
Tata Consultancy Services Limited Information Technology
Tata Motors Ltd. Transport Equipments
Tata Power Company Ltd. Power
Tata Steel Ltd. Metal,Metal Products & Mining
Wipro Ltd. Information Technology

Of the 30 scrips in the Sensitive Index, in the past quarter, when almost 50% up FII inflows have been pumped in, the FIIs have increased their stake substantially. Of the 16 firms who had disclosed their shareholding pattern for September 30, 2010 in 14 scrips FIIs have hiked their shareholding. The sensex, which are large caps index have reached dizzy heights in the quarter mainly due to FIIs hike in their holdings

FIIs have increased their stake mainly in SBI, HDFC Bank and apart from the sensex other bank stocks such as Allahabad Bank, Andhra Bank, ING Vysya Bank and Indian Overseas Bank. A leading brokerage firm has opined that, the second quarter is likely to be another strong quarter for Indian banks with a strong 25% earnings growth. What could be perceived as the trend, FIIs holdings in Sensex stocks have gone up and they have mainly focused on the large caps in the past quarter. Among the possible reasons for this could be that with mushrooming new foreign funds, and surging inflows, have taken exposure to India and have mainly stay put their exposure, investments to top companies to minimize risks. According to Suresh A Mahadevan, Managing Director, Head - India Research, UBS Securities India,

"Our order book shows that we are increasingly seeing investors in a basket of stocks. This seems to suggest that a lot of first-time foreign institutional investors are putting in their monies in India,"

The more widely used Price to Earnings Ratio (PE Ratio)in the Sensex. is trading at a PE ratio of 19 times its current years , which on all counts appear to be expensive. However given the emerging market status to India and expected GDP growth in double digits, though the PE ratio is little expensive considering India's long-term PE average of around 15 times, the bullish nature of the market and positive sentiments are round the corner.

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