Circa 1999: A flush of FII funds and signs of an economic turnaround set the market on fire. The 30-share BSE sensitive index touches an all-time high of 4810 points. Some stocks in Group A touch new highs, but the vast majority continue to trade at a significant discount to their all-time high.

So, is there scope for further appreciation? Are we yet to see the peak? Or is there more to it than meets the eye. There are 132 stocks in Group A which are currently trading at a discount to their all-time highs, of which almost 50 per cent are below the half-way mark. However, before one jumps to conclusions about the direction of the market, it will be worthwhile to take a look at stocks quoting at a steep discount. Most of these are old guards, struggling to stay afloat. Hit by both external and internal factors, these companies have seen their earnings fall substantially. So, it's not really surprising, therefore, that the market has not found a fancy for such stocks. And, it isvery unlikely that these stocks would see a sharp spurt in their values.

However, this is not to say that the rally on the bourses has peaked. On the contrary, there are technical and fundamental signs of the market showing signs of strengthening further. Foreign funds are still flowing in and the political pundits are forecasting a stable government at the Centre. This feel-good factor is likely to sustain the market at current levels, if not higher. To top it, analysts are expecting a growth in corporate bottomlines in the second quarter after the impressive top-line growth in the first three months of the current fiscal. It is here that the field is wide open for bargain-hunters. Some good picks include MTNL, Bhel, BPCL, United Phosphorous, Siemens, Sterlite Industries and Colgate Palmolive among others.

However, with retail participation on the bourses beginning to perk up, one must ward off against any attempt to being led up the garden path. The rally is currently more pronounced in the mid-cap andsmall-cap stocks rather than the large cap stocks, but there are signs that these stocks are getting over heated. Almost every second stock in BSE's Group B1 and B list is scaling a new high every day. The time is, therefore, ripe to book-profits at these counters and re-enter some of the good large-cap bets, which are trading at a discount. However, avoid the 27 stocks from Group A which are being thrown out, even though the discount may be appealing.