Updated: Mar 22 2006, 05:30am hrs
Whether it is news that the Reserve Bank of India (RBI) has set up a panel to draw a fresh roadmap for capital account convertibility or a continuation of the past momentum that drove the Sensex past the 11,000 mark, is hard to tell. As it happened, the index flattered to deceive, since it finally ended substantially lower at 10,905, down 36 points from the previous days close. On a day marked by volatile trading, the gap between the intra-day high and low was as much as 154 points.

If the earlier buying spree could be explained as being liquidity-driven, the latest bull run is a little more inexplicable. All over the world, including India, there are unmistakable signs of liquidity becoming tighter. The US Federal Reserve has raised interest rates 14 times in a little less than two years. More recently, the Bank of Japan has also signalled an end to its easy money policy. So has the RBI. The increased market volatility is, perhaps, a reflection of nervousness on this account. Part of the momentum, of course, comes from the huge mop-up by mutual funds. Equity funds have collected more than Rs 15,000 crore in new fund offers. Thats more than the total assets in MFs just three years ago. Last week, Reliance Asset Management Company made history collecting Rs 5,800 crore for its new equity fund. Add to this the fact that foreign institutional investors (FIIs) have continued to pump in moneyinflows in the calendar year to date have crossed $3 billion, against a total inflow of $10 billion for the whole of 2005and the fact that Asian markets in general have been on an upswing (though they all ended lower on Tuesday), and we have the recipe for the bull run.

What is worrisome, however, is that rather than slowing, the pace seems to be gathering momentum with each new high. While it took 48 days for the Sensex to move from 9,000 to 10,000, it has traversed the distance between 10,000 and 11,000 in just 29 days. Does that mean we are in a new orbit altogether Has the 10,000 mark been left behind for good There are no unambiguous answers. The India growth story is all very well, but it would be naive to assume the stock market is a one-way street. It is not. Corrections, profit-booking, call it what you will, happen from time to time. The broad trend may be upwards, but it is not a linear progress. In such a scenario, retail investors had best watch out for themselves. We can only repeat what the FM said when asked for his reaction on the Sensex reaching the 11,000 mark: Good luck to you!