The finance ministry is of the opinion that the current rally in the bourses is genuine. The Bombay Stock Exchange Sensitive Index, which shot up over 40 per cent between May and mid-September this year, is institution-driven and not operator-driven.

The assessment that the market rally is authentic comes after a thorough homework by the ministry of the situation on the ground. Specific sector rallies, including those in steel, banking, automobile and pharmaceutical have been taken into account in arriving at this judgment, finance ministry sources said.

While Finance Minister Jaswant Singh is keeping a close tab on the stock markets as well as on the market regulator Securities and Exchange Board of India, the ministry and Sebi have concurred that the rally is based on strong macroeconomic fundamentals.

The sources said companies have posted good first quarter results and their profitability was on the rise. This has been reflected in their stock prices. Further, a good monsoon had lent a feel good factor to the economy, they said. These sentiments have led to the rally with the Sensex rising by almost 1,230 points from 2,966 points on May 1 to 4,194 points on September 15.

In the first week of July, the finance ministry had asked the market regulator to check if the rise in Sensex was in tune with the fundamentals of the economy. The Sensex had then pierced the 3,600-mark and had risen 20 per cent since May 1. It had asked Sebi to also study the movement of the Sensex vis-a-vis other global benchmark indices.

While the regulator subsequently told the ministry there was nothing to worry and that the momentum was backed by fundamentals, the recent events of dabba trading and the rise in penny stocks had raised many an eyebrow.

Sebi too asked the retail investors not to get carried away by rumours and base their decisions on the fundamentals of companies.

The regulator has also reverted back to the finance ministry informing it about the various instances of malpractices in the market during the last couple of months and the action initiated by it.