However, the Sensex euphoria was not shared across the broad market spectrum. Hundreds of small and medium companies remained subdued or showed only a marginal rise. The BSE Mid-Cap index, which shows the movement of 274 medium-sized companies, rose just 13.36 points (0.18 per cent). The BSE Small-Cap index, which reflects the movement of 468 companies, declined by 82.21 points or 0.9 per cent.

“I do not think retail investors are entering the market at this level. I would advise them caution,” Chidambaram told reporters in New Delhi. There is apparently a lot of interest from foreign institutional investors, he said, adding, “Why should we not welcome it?” The finance minister also said that in case the Reserve Bank of India (RBI), the country’s central bank, approaches the Government, it would review the ceiling on Market Stabilisation Scheme (MSS) bonds, a mechanism to suck out the liquidity that flows into the market when the RBI intervenes in the forex market. The current MSS bonds’ ceiling is Rs 1,50,000 crore per annum. Out of this, the Government has sucked out liquidity of Rs 1,42,000 crore so far this year.

After a roller-coaster ride, the Sensex ended at 17,847.04 after hitting an all-time high of 17,953.07 in early afternoon trade. However, selling started soon and the index plunged by almost 600 points and hit a low of 17,288.41 during the mid-afternoon trade. The market started bouncing back again following renewed buying by foreign funds. The S&P CNX Nifty was up 141.85 points, or 2.8 per cent at 5,210.80, an all-time closing high.

Many market experts feel the rise has been too fast. “The uptrend in the Indian markets has been accelerated after the Fed rate cut. International investors have been on a rampage as is evident from the large FII numbers. However, the rise has been too fast,” said ING Investment Management CIO Paras Adenwala. Adenwala and other fund managers feel the sustenance of the sentiment depends on the coming quarterly results and the political environment.

“The Sensex surge is driven by liquidity provided by foreign investors. They have been pumping money into India. Some hedge funds, which lost money in the recent liquidity crisis are also said to be moving funds to India, and other emerging markets to recover their losses. This money is going to into top blue chip shares. They might pull out any time after making decent profits,” said BSE dealer Pawan Dharnidharka.

Said Religare Securities Ltd president (equity) Amitabh Chakraborty,”rumours of fund selling by the likes of Goldman were doing the rounds in the mid-trading session when the Sensex lost more than 600 points from the top, and fears of a much-awaited correction resurfaced. However, the correction was extremely short lived and the markets again covered almost the entire lost ground to close more than 500 points up on aggressive buying in RIL, REL, NTPC, Infosys and RCOM.”

FIIs have invested a record $4.15 billion in Indian stocks since September 18 when the US Fed cut interest rates to tackle the US economic slowdown and subprime crisis. As per Sebi figures, nearly $2 billion has come in the last three trading days. The Indian market has never seen FII inflows of this magnitude, observe fund managers

The Sensex which crossed the 16,000 level on September 19 took only five trading sessions to cross the 17,000 level on September 26. With no let-up in FII inflows, marketmen are sure that the index will hit the 18,000 level in the next one or two trading sessions.