The market is in an extremely unusual state, and no previous models are available for comparison. Foreign players have entered the game, prepared to pay a higher price for a piece of the Indian market cake. This has posed a threat to local entrepreneurs, who are now gearing up to meet the threat.And then there are mergers, which is basically process of industry consolidating, and becoming more efficient. These forces have ended up taking stock prices more and more away from conventional methods of rating.

Analysts have been applying newer yardstics for a while, like EVA, and turnover/market capitalisation ratio. Stock valuations are getting more and more distanced from traditional methods of relating to earning per share and return on networth. Today, players are left with only one major signpost: what the market is saying and paying. But there lies the danger.

The Net-related stocks mania is here. As domestic IT companies go for listing on the Nasdaq, the stock price come to be decided what the US punters say.

People, however, fail to notice a distortion here. The quantum of shares listed on US bourses are only a small fraction of the total equity. Since the investment climate there is well-conditioned to take a highly speculative interest on anything related to IT, stocks of Indian firms are eagerly gobbled up.

But one has to keep in mind that many have expressed a view in US that more than 85 per cent of the IT stocks would prove to be a disappointment for investors; only a handful of companies will last out.

It usually happens that many Indian companies have good management, and excellent technical manpower. Therefore, it is no surprise that these scrips end up floating right on top of the speculative swirl there.

Also, since promoters have a good share in the total equity, they stand to gain in any steep price rise. Read this together with the fact that for some companies, those who pick up equity in US happen to be NRIs again. A nexus cannot be ruled out.

Price-rigging is very easy, if the same group is interested in the company. This falls beyond Sebi's ambit.

The Indian stock price dances to the tune of the quotes at Nasdaq. Groups with interest abroad and at home will find it very easy to manipulate to gain at both ends. And now,this has become the current mode to be passed on as a price discovery. The question is : Is there a price discovery or price management?

Despite the good potential of these IT firms, the fact remains that market prices are being driven more by liquidity and speculative manipulation is very easy. In the process, they suck in the liquidity available with funds, who join the game, not to be left out. The continuous inflow of money into mutal funds too has hastened the process.

Therefore, the current logic of stock price is one more of expectation, liquidity and speculation, rather than any relation to performance per se. A whole lot of players are actively involved in this game. The FIIs, the mutual funds, the speculators and high networth individuals and the street trader. The comedy is the rationalisation process. If you needed to justify a high price, you pull out any number of explanations. The investor must try and measure how many of this argument hold water and how much?

Take Infosys. The high rating is due to the management quality, its transparency and technical capability. Being a leader, it is reasonable to expect that this company would be able to tap into many opportunities likely to come its way.

For a moment here, let us recall the TCS boss' statement that years down the lane, the Chinese and others would pose a real threat to what is now an advantage to India. The infotech players should anticipate such challenge.Quite likely, a company like Infosys can meet such challenges. But as its valuations keep skyrocketing, the risk to the investor goes up sharply - not in normal times, but whenever a storm, of whatever nature breaks out in the stock markets. T6his applies even more to any number of companies who are flying kites just by attaching a .com after their names.

Stock prices keep climbing up for good as well as bad companies. Under such circumstances, it is easy for investors to lose sight of their perspective and objective evaluation. Few traders are interested in the fundamental merits or evaluation.

Is there a way out, of not missing out on the opportunity, however speculative it may be and not ruining oneself, should a melt-down occur? The trick is to recognise the speculative nature of these scrips, and restrict your exposure. And at the same time, try and take a medium-term view on more value-based buys in other segments. Here too, one has to apply the same logic. A number of pharma scrips are on the rise, without any relation to their fundamentals. The only logic seems to be that prices would go up in any case. Takeover possibilities excite here. But not everyone is a potential or suitable candidate.

There are two advisable steps here: Staying with blue chips will give you a good balance between risk and return. The other is to invest some in commodity stocks, which are expected to have a reasonable growth. And reasonable growth is 15-20 per cent. Certainly, this is peanuts compared to the software sector. But here, your risks are minimal. You could build your own balance portfolio, picking from info-fund, balanced fund, commodity fund and others.

The risk-return profile of such a portfolio would be much better than taking a single exposure on any single software company because the software company is priced high, based more on hopes than actual performance. And therefore, you stand the risk of your capital getting wiped out by half, should some thing go sour.