Fresh Sensex rally more broad based

The markets are back again and the benchmark Sensex at the BSE has crossed the 20,000 mark following a 10 per cent rally for the third time in four months. However, unlike the previous rally in July, when the Sensex rose by 9.5 per cent and the mid-cap and the small-cap indices at BSE rose by only 2 and 1.6 per cent, respectively, this one seems more broad based. While the Sensex has gone up by 11.7 per cent since August 21, when it closed at 17,905, the mid-cap and the small-cap indices too have risen by 6.2 and 5.4 per cent, respectively.

It may be too soon to call that the markets are back for good, as there is an upcoming event of likely tapering of quantitative easing by the US and the markets will have to tread through that but the fact that the broader market has also witnessed a notable gain this time reflects the confidence of investors even away from the blue chips. The mid-cap and the small-cap indices have been battered down over the last eight months even as the Sensex has remained flat. Since January 21, when the Sensex closed at 20,101, it is down by only 0.5 per cent as on Wednesday's closing, however, the mid-cap and the small-cap indices have lost 28 per cent and 35 per cent of their value in the same period.

The fall has been very systematic. In the 8-month period, on three occasions, the Sensex fell by 9.3, 8.6 and 11.8 per cent. But during the same periods the mid-cap index fell by 15, 11 and 12 per cent, respectively, and the small-cap index fell by 21, 10 and 9 per cent, respectively, opening up a gap in the relative performance of the three.

The gap further widened when the Sensex rose. Each time the Sensex rallied by 10 per cent or more since April 2013 (on three occasions), the mid-cap and small-cap lagged significantly, opening a wide gap in the performance of the three benchmark indices. The latest rally, however, being more inclusive is indicative of the growing confidence of investors and market participants.

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