Above 30,000

The BSE Sensex crossing the 30,000 mark has generated the kind of euphoria the retail investors should be wary of. Greed at times like this tends to blind reason. It needs reiteration that there is no dramatic change in the economic fundamentals of the country to warrant this irrational exuberance. Domestic and global factors have combined to create an intoxicating positive effect in which negative news ceases to be noticed. It is an unchallenged fact that public sector banks are crippled by bad loans, private investment is not happening and global agencies have not upgraded India’s rating because of its high, unsustainable debt.

It is a global and not India-specific rally in stock markets and it is difficult for a lay investor to keep track of international developments. Donald Trump’s major cut in corporate tax may benefit US companies but this can lead to capital outflows from emerging markets like India. US companies will have the lowest tax rates among the G-20 nations. Stability returning to the euro zone and Emmanuel Macron scoring a win in the first round of French Presidential elections have contributed to the ongoing stocks rally but their impact may wear off soon. The rupee strengthening against the dollar is another factor but it cuts both ways: benefiting importers and hurting exporters. Corporate earnings in the fourth quarter have by and large added to the cheerful mood. Fears of an adverse impact on account of demonetisation have turned out to be exaggerated. The BJP’s election victories, the GST rollout from July 1 and emphasis on government spending on infrastructure and housing have been well received in the markets.

Low inflation, low deficit and fiscal prudence are among the positives Finance Minister Jaitley recently listed in Washington. These add to the upbeat mood but the most powerful engine driving the current rally is liquidity — regular buying by both domestic and foreign funds. Official data suggests domestic funds and FIIs bought stocks worth Rs 998 crore and Rs 179 crore, respectively, on Tuesday alone. In this situation retail investors need to be circumspect. Experience shows markets often take sudden U-turns, leaving inexperienced investors trapped in a whirlpool.