But in the case of SBI, neither reason would hold true. Reality is that the rally is a major correction in the negative perception surrounding the bank for the last one year which had culminated in a very steep fall. But the over-whelming majority of market opinions have pointed to a perceived recovery in the economy as a driver of the rally in bank stocks.

The real reason is that independent of a broader recovery, bank stocks and SBI in particular, was undervalued for a very long time. All that was needed was a catalyst and a lot of money. Both came in the form of FIIinflows searching for under-valued/cyclical stocks. The general opinion among analysts now is that SBI is no longer undervalued at the current price. In fact, the stock is now dependent on external flows for the rally to sustain.

The results from the banking sector that have been announced so far have not been very encouraging. SBI's own results will be announced only next month, and the prospect cause for among analysts. Last year, the net profit was Rs 1,863 crore, of which the post-tax equivalent of investment depreciation write-backs amounted to Rs 630 crore, so the profit after tax amounts to Rs 1,230 crore.

If the excess provisions for NPAs are added, the adjusted PAT works out to roughly Rs 1,500 crore. Of late, the SBI management has been saying that the correct profit figure for last year should be taken as Rs 1,230 crore, which is being interpreted by analysts as a hint that net profit for the 1998-99 will be lower than Rs 1,500 crore. The consensus profit estimate on the street is in excess ofRs 1,500 crore. If the market is disapointed with the result, there will most certainly be a strong negative reaction in the stock. But even in case of a reaction, analysts feel that there is a floor for the stock at Rs 200-220.

Refinery stocks

One of the star performers in the recent bull run have been the oil sector stocks, especially IOC, HPCL, BPCL and ONGC. The stocks of these companies had more than doubled within a span of two weeks. These stocks had not taken part in the earlier run in Sensex which ranged from 2,741.70 to 3,817.94 during November 1998-March 1999, but in fact, were hammered down. So what has changed suddenly to make these stocks attractive?

To answer that, at first, we have to take a look at the reason behind the fall of these stocks. The most important factor was that partial deregulation had affected the earnings potential of these stocks. Further, the government's decision to divest its stake via equity swaps was received very badly by the market.

To top it all, oneof the major sellers during the last six months, according to market sources, has been UTI. The stocks were hammered to such low levels, that they were being traded at a discounting of as low as 2.8 in case of BPCL. Valuation were similar to some of the badly run sugar and textile companies. There was nothing worse that could have happened for the sector; in other words, all the bad news was more than fully discounted.

Rajesh Iyer, equity analyst with Triumph International, says that while these scrips were taking a beating, internationally, commodity prices along with crude oil were on the rise. The rise in the petrochemical feedstocks was higher than that of crude. Further, demand for the products have also started to pick up slowly. On top of it, some of the Korean and Indonesian refineries are going in for a shutdown. This would mean better refining margins for Indian companies.

The factor that improved stock prices was the FII interest in the sector. This is apparent from the huge chunks in which thestocks have been bought. Iyer says that apart from the FII interest, another factor that resulted in the sharp run has been the liquidity in the stocks. Within a short time of opening of the market, these stocks have been touching the upper circuit.

So how long is the bull run on these stocks going to last? Market observers say that once FIIs are out of these stocks, there will be little interest in them, despite the bonus announcement from HPCL.