0700

4 August 2009

New Delhi

Shares roared across the world yesterday, setting all manner of new records. The US S&P 500, for example, hit 1000 for the first time this year, and the UK FTSE was at a new high. The Indian Nifty has gained 83% from its March lows, and exactly 80 shares hit new 52-week highs yesterday, with 31 of these at 2-year highs. Foreign money continued to suport our markets, and numbers for Friday showed that foreign investors had put almost 800 crores into Indian equities.

Weakness in the dollar against other major currencies, and the continued influx of foreign funds, took the rupee-dollar parity to a 7-week high of 47.64. Against the Euro, though, the rupee is fairly stable, around 68.

Oil is tending higher, and ended at 71 dollars. Combined with lower exports, renewed strength in crude oil is the first candidate to poop this bull-party. The other is interest rates - the government borrowing program took the yield on 10 year bonds above 7 per cent, and it doesn't seem the government's need for funds is letting up any time soon. The very liquidity that is supporting markets is creating monetary pressures that can derail it!

In the short-run, though, momentum can carry our stock markets to levels that are unsupported by the tentative beginnings of the end of a global recession. The Nifty's closing yesterday translates to a PE of 21. By my yardstick, the Nifty enters bubble territory at 22; though it  can stay there for a while, all bubbles burst.