What the charts don’t foretell

The skewed weightage of some select stocks is distorting the valuation gap between large and mid caps

The reaction of a widely-read pink paper, when it screamed “Band, Baaja, Bernanke!” to capture the 600-point rally in the Sensex, following the US Federal Reserve’s decision to continue with the stimulus package, seemed to suggest the worst was over for Indian equities. But after hitting a three-year closing high of 20,647 on September 19, the euphoria didn’t last for long as the benchmark fell 700 points (4%) to 19,920 on September 24. The slide was largely on account of a surprise hike in the repo rate by the new Reserve Bank of India governor, Raghuram Rajan, who continued the hardline approach taken by his predecessor towards combating stubborn inflation.