Champagne bottles were not out on the Indian stock exchanges when the Sensex was flirting with 14k level recently. None felt excited except the headline writers. The gold rush was not taken at face value. Attention was more on silver and bronze and the general fitness of the athletes. 

To those with a statistical bent of mind, the benchmark index's sojourn at 14k is no big event. If only the Indian growth rate kept pace with the spike! The index that sank to a low of 8,900 only last June, has now rebounded to 14,000 plus. Spectacular indeed. On a close look, the thrill ebbs away. A small fraction, barely 10% of the actively traded stocks accounts for 90% of the added value since June. Of the 50 shares forming the tip of the iceberg, 10 cornered 40% of the enhanced market cap. The wonder kids were software, telecom and entertainment (ITE) companies. Infosys led the pack with a sizzling surge of over 80%. 

While the creamy layer thus took away most of the gains, less mortals among investors were left in the cold. Losses in the mid-cap and small-cap sectors ranged from 1% to 78% as compared to May-June positions. Those sectors are, as a rule, populated by retail investors. A typical example of the paradox, poverty amidst plenty. The heavy inflow of foreign funds kept the pot boiling. Up to $3.5 billion came, in just two months. 

What lessons to be drawn from the divergent trends in the indices? For long they have ceased to be the barometer of the economy. Now they are not seen as the measuring rod for the market. The culprit is the high P/E ratios of certain stocks. These stocks do not gel well with the mainstream industries. And have a world of their own. If they are out of the indices the P/E ratios will fall to meaningful levels. From 16-17 to 11-12, according one estimate. The P/E ratios of retailing and entertainments stocks range from 30 to 60. At the same time the stocks of more solid stock of oil companies show a ratio of only 7. So there is little justification for retaining the high value stocks in the leading index. For the sake of a clearer signpost they should be jettisoned.

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