No one should regret the halt in the Sensex's climb upwards. A technical correction at this stage will do much good to the health of the market. Even if the crisis at the BSE or the war at Kosovo had not broken, the index would have faced resistance at the 3,800-point level. What we missed was the test being put through.

The index has risen from the 2,800-point level in December to 3,800 points in just three months. That is a whopping 35 per cent rise. The rise from the 3,200-point level came after the budget was presented.

The fact of the matter is that stock prices are running ahead of their performance. A recent survey has pointed out that corporates do not expect any fireworks to be reported in the next quarter. The expectation for growth has been pegged at around 8-10 per cent on an annual basis for March, 1999, in select industries. Others are more damp.

It is not surprising that foreign institutional investors (FIIs) are reported to have booked profits at software counters. Someof the best mutual funds operating in the US have managed to post a sustained gain of 22-25 per cent per year. That could well form the benchmark for investors in India. And that return has already been earned for the Sensex for those who decided to invest at the 2,800-point level.

The gain for those who invested in the software sector has been as high as 150 per cent. In the pharma sector, it has been 85 per cent. The auto industry, both two- and three-wheelers as well as four-wheelers, has posted a gain similar to that recorded by the index, around 25 per cent. On the other hand, banks have failed to give a sustained performance on the bourses. What you witness is an upward movement, which is soon aborted. And, in any case, prices of banking stocks have gone up due to the efforts of RBI rather than any improvement in core performance.

On corporates in the core sector, like ABB and BHEL, the experience would have been one of sheer frustration. Here, values have oscillated and you may have ended uperoding your capital in the game, and not even made half of the Sensex's gain. Power stocks have been a big shock again, having gone down by as much as 15 per cent in value. Personal care product scrips, however, scored a 50 per cent gain. The packaging scrips did even better, jumping 50 per cent first and later bettering it by another 30 per cent hike.

Petrochemical stocks oscilated between hope and despair. And if you were not ever vigilant you probably posted losses instead of making gains. And gains have been of just around 10 per cent against the Sensex's gain of 30 per cent. On the other hand, pesticides are following the pharma sector closely with a 50 per cent gain. The surprise comes from the cable sector, which has been vying with the pharma sector with a close to 150 per cent gain. The advantage here has been that several companies with small stock prices have multiplied in their value. Therefore, these have served the purpose of attracting the small investors.

It is another matter thatinvesting in second-line stocks is not preferred normally by any fund manager. For the risks are high with promoters who have yet to demonstrate their track record.

If there has been one group which has proved consistent and reliable for the investor, it has been the plantation group. Gains have been a tidy 40 per cent. Paint and paper have been damp squibs. Cement has been another reliable sector, but returns here have been modest, and less than the gain in the index. But for a tradeoff between risk and reward, cement has been reasonably good. The compressor industry has shown a similar profile. Here, however, the rewards have been better at around 25 per cent.

Cigarettes gave perhaps the best opportunity in terms of predictability. Even before the budget it was clear that the industry is unlikely to attract any great excise burden. But what was surprising was that stocks like ITC got themselves re-rated in the light of lack of earnings growth in the past.

This may be so partly because of expectationsof BAT buying UTI's stocks, and also because of ITC seeing the possibility of selling foreign brands, which would add to its revenue and margins. But stock prices have risen quite a bit and one would wonder how much higher they can go.

The casting and forging industry is another surprise and has done reasonably well with around 40 per cent gain. So there you have the picture. While major gains have been in the software, pharma and FMCG sectors, others have reported varying performance, oscillating between negative to over 25 per cent.

The technical correction coming in just now is therefore good. And the correction, right now, is taking place in a big way in software stocks. While I do welcome the toning down of flared up prices, the reasons for the southward journey are misconceived. I have heard many arguments about how these stocks vibe with what is happening with their cousins on the New York Stock Exchange.

The comparison is misplaced. The toning down of software stock prices in the US is forspecific reasons. PC sales are not going up but down. And Internet stocks are being re-rated. The fall in PC sales has been linked to the waning Y2K problem, or at least that is the way they see it. But again, the market is reacting too quickly based on the first-quarter results, which is more due to seasonal factors than a change in demand. This is typical where analysts can link factors, whatever they fancy.

In Tamil, they say you try to tie a knot between a shaven head (presumbaly at Tirupati) and your squatted knee. Analysts seem to be rejoicing in such exercises.

PC sales in the second quarter are likely to look up and then the perception will change once again. As for Internet stocks, their toning down has to be viewed in a completely different context. Analysts and fund mangers have been at a loss to pin down a formula for evaluating investment in an Internet stock. Nevertheless, everyone knows and admits that these companies sit on a huge potential over the next five years. But if these stockslose some fat from their fancy levels, or if Internet companies sack some of their staff, it is no great shakes. And arguing that Indian software stocks dance to these tunes is somewhat far-fetched. It may be no more a coincidence than a crow sitting on the palmnut tree and the palmnut falling.

Indian software stocks are falling because it makes sense to book profit. Infosys was commanding a ridiculously high price-earnings (PE) and there was no other way but down. The stock market has already given a return of 30 per cent or more in the last three months. This is more than what any domestic or foreign investor can target for an entire year. So, no one should shed tears if the Sensex is falling. On the other hand, it is time to rejoice, for once the correction is over, you will have one more healthy ride northwards. And investors take on less risks at the reacted levels. I hope the reaction is substantial.