Second, investors feel things will be "different" this time around and ignore traditional valuation methods. Till recently, analysts were talking about the "complete decoupling of financial markets" and "re-rating Indian equity markets in terms of valuations". But, some were concerned about valuations.
Markets expected earnings to grow at 20 per cent, but when the Sensex crossed 20,000 the price earning-to-growth started moving over one. Last time around, this exuberance was higher and was concentrated in tech companies.
People expected earnings to shoot up exponentially. This didn't happen. Things did change, but in their own fashion: The tech bubble burst but the technology survived.
Finally, investors don't want to be left out from the rally and, especially, miss out on the next hot stock. This has been quite apparent in the recent past. Two examples come from the Reliance pack.
Reliance Petroleum, which doesn't have any earnings, bounced over 300 per cent, with prices moving from Rs 63 in January 2007 to Rs 269 in November 2007. It currently trades at Rs 155.
Reliance Power, which, again, does not have any plant in place, saw its IPO subscribed over 72 times. The grey market was willing to give 100 per cent premium.
Image: A nervous investor watches an electronic screen outside the Bombay Stock Exchange | Photograph: Sajjad Hussain/AFP/Getty Images
Also read: India's highest paid CEOs
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