Definite signs of an economic revival, stellar performance by information technology companies and the general feel-good factor

Infosys isn't the only scrip that has acquired the countenance of currency. In what appears to be a steady wave, new and little known software firms -- VisualSoft India stocks rose from Rs 625 last December to Rs 8,448 in January -- have created millionaires across the country both amongst ordinary shareholders and employee-stakeholders. Infosys itself has 100 crorepatis and 1,800 lakhpatis amongst its ranks, many of whom must have bought the shares at Rs 95 in 1993. In fact, if an investor had put in Rs 13,500 in Infosys in June 1993 he would be worth a crore of rupees today.

The rush is not limited to technology stocks either. Indeed, on January 3 when the market opened for the new century, over 700 scrips touched the upper limit band rising by over 8 per cent and pushing the Sensex by an astounding 369 points. To some it would appear sudden, but after Kargil victory and the swearing in of the Vajpayee-led NDA the market has not quite looked back. In fact, as investment consultant Deepak Mohoni points out, "The bull market has lasted well over a year." The Sensex had crossed the 5,000-mark on October 5 itself but later receded. Analysts believe that if it had not been for the Y2K hysteria the indices would have reflected the mood of optimism in the economy.

And there is lot to be optimistic about, if one sets aside the burgeoning fiscal deficit. The rate of inflation has stayed put at sub-3 per cent levels through most of the year, exports have picked up and grown by 10 per cent, industrial output is up, government's tax revenues are reasonably buoyant and agricultural income has grown. DSP Merill Lynch's India Strategy report avers, "India is on a recovery path. GDP growth is forecast at 5.8 per cent for this financial year and 6.5 per cent for the next year. Private consumption is leading recovery and we believe investment growth is likely to support it. We expect double digit growth from next year following a rise in infrastructure investments. We also believe that the next budget will start the process of fiscal reforms with specific measures."

Not surprisingly, UTI Chairman P. Subrahmanyam feels bullish enough to say "the Sensex should touch 6,000 by the budget. I had earlier said by Diwali but the way the market is, it should be much earlier. The rally justifies our forecast of a revival in the economy." Shankar Sharma, chairman, First Global, says, "We are in for a five-year bull phase. You can ask me every six months and I will keep saying the same thing." In fact, those who were earlier sceptical of a bull run are now rueing their gingerness.

So what's driving the market besides the feel-good-factor? Quite obviously the infotech sector. Samir Arora, chief investment officer, Alliance Capital Management, says: "We are in the right place and right time for the technology boom. We have a very good software sector and there is no real software sector elsewhere in the Asian markets. Sure, they have a technology sector in terms of hardware but India is uniquely placed."

Sharma echoes these views. "Call it India's decade or even century," he says. The feeling is clearly reflected in the composition of the BSE Sensex -- which now has a weightage of 23 per cent as compared to 10 earlier for the infotech sector -- and the appreciation of stock prices. Shitin Desai, managing director, DSP Merill Lynch, points out that there has "been a paradigm shift in valuation norms". The old theories of PE multiples and EPS have been thrown to the wind. Financial analysts now spout a new mantra: earning potential and infinity multiples.

More important is the paradigm shift in business categories. Traditional brick and mortar businesses are trailing new businesses like infotech, media and entertainment. There has clearly been an increased democratisation of capital and the feudal tradition has given way to the birth of new entrepreneurs and new businesses. Says Desai: "New businesses are setting standards for the old." Arora adds that "Indian corporates are under pressure not from bankers or government as it used to be but from other companies creating wealth. The old school is realising that they might have the assets but they are not hitting the pages of Forbes and Fortune."

Wipro, Zee and Satyam have created the aura. Ergo shareholder value is the top mantra. But naturally the corporates are working towards restructuring, a factor that is reflected in improved results over two quarters.

As Ridham Desai, India strategist and vice-president, JM Morgan Stanley Securities, points out, the recent spate of mergers and acquisitions activity is but a pointer of the push for restructuring. "We have seen a very strong surge in M&A which is a powerful stock price driver." It's a thesis that has been proved in the US and European markets. Companies are thus getting out of unrelated businsess, doing away with cross investments, adopting global accounting standards and aiming to list on Nasdaq (as Satyam Infoway and Infosys have) or NYSE as ICICI has and Reliance Industries Ltd wants to.