On Monday, the markets started on a cautiously optimistic note with modest gains. Good corporate results and the rally in Satyam helped the indices to close higher. Tuesday saw the markets drifting lower even on the face of some good corporate results.
Wednesday was a big day on the results calendar as Reliance came out with its annual numbers. Though the company reported excellent growth in revenues and profits, the markets declined as the family feud hit a peak.
Thursday was important for traders as the April series of futures and options expired. The markets opened weak before short covering helped the indices to close with marginal gains.
Friday was a painful day for most investors as the indices declined by 2 per cent. The sharp fall in bank stocks led the decline as the markets interpreted RBI's monetary policy as signaling a difficult outlook for the banking sector.
US markets were affected by the first signs of an economic slowdown after successive quarters of steady growth. The US economic growth for the first quarter of 2005 at 3.1 per cent was slower than the previous quarters. A fall in orders for durables and equipment affected sentiments further. This was more bad news for the markets after the rise in consumer prices reported during the previous week.
The US markets managed to close the week on a positive note on Friday as another set of data showed that consumer spending have increased despite higher prices. The higher consumption was aided by a rise in income level by one half of a per cent.
One reason for the decline in stock prices of Indian software companies can be traced to the US data on business spending. Growth in corporate investment in equipment and software declined to 6.1 per cent during the first quarter as compared to 18.4 per cent in the last quarter of previous year.
Oil prices closed the week below $50 to a barrel, its lowest since February of this year. Crude futures started its down trend after the US president initiated some proactive measures to cool oil prices. He had a meeting with the crown prince of Saudi Arabia and urged oil producing countries to increase supplies. This prompted OPEC to issue a statement that oil supplies are comfortable and are increasing.
The rise in US crude inventories, which was above expectations, dealt a further blow to crude prices. The stock of refined products in the US was also higher ahead of the peak summer demand. After opening the week around $55 to a barrel, crude futures lost close to 10 per cent during the week.
Inflation for the week ended 16 April rose to 5.64 per cent from 5.48 per cent reported for the week before. The rise was on account of higher prices of food articles, base metals and manufactured products. As crude oil prices have declined during the week, the government may decide to further postpone the fuel price hike. This may help in avoiding any sharp jump in the overall price levels.
Reserve Bank released its monetary policy during the week. The central bank has decided to be proactive in managing inflationary pressures by raising the reverse repo rate by 25 basis points. RBI believes that the interest rate cycle has turned from the steady decline during recent years and expects inflationary pressures to rise in the short term.
The central bank expects no serious threats to the growth momentum. It expects the economy to grow at around 7 per cent on the back of a better performance by agriculture. The bank's target for domestic inflation is between 5 and 5.5 per cent.
On the external front, the bank is of the opinion that a considerable part of the current rise in crude oil prices is of a permanent nature and wants the government to consider this fact while fixing retail fuel prices. It expects the overall external account of the country to be comfortable even though forex inflows may slow down during the current year. The Indian economy may not see much of an impact from a possible revaluation of the Chinese Yuan, according to the bank.
In future, RBI would give quarterly guidance to its monetary policy stance with a view to manage market expectations better. The bank will also try to address the structural issues in the debt market in an expeditious manner.
The Reliance family spat became worse over the week as the flagship Reliance Industries declared its results. Vice chairman Anil Ambani refused to sign the accounts claiming sufficient details were not provided.
Earlier in the week, questions were raised on the sale of a 50 per cent stake held by Reliance Capital in an associate company which in turn held a substantial stake in IPCL. The sale by Reliance Capital to yet another associate company was at par value and one of the directors of Reliance Capital objected to the deal. SEBI is now believed to be looking into this deal in much detail.
In another twist to the entire drama, it has been revealed that letters written by members of parliament to the prime minister asking him to intervene in the issue were forged. These parliament members are now demanding a detailed enquiry into the matter. The ministry of company affairs is reportedly conducting a fresh enquiry into the shareholding pattern of Reliance Infocomm after the issue was raised again in parliament this week.
A committee of parliament has called for an investigation into the grant of permission to Jet Airways to start service to US, immediately before its IPO opened. The ministry of civil aviation had granted the permission on the day of opening of the IPO and the committee believes this was done to help the company in successful completion of its IPO.
The Shopper's Stop IPO opened on Friday after the Supreme Court allowed the issue to go through. Earlier, the Guwahati High Court had stayed the IPO on a petition filed by some traders. The issue was fully subscribed within minutes of opening.
Two new listings were made on the stock exchanges during the week and met with very different receptions. While Gokaldas Exports gained close to 50 per cent on the day of listing, Shringar Cinema lost 16 per cent on the first day. Gokaldas is the country's largest exporter of garments and Shringar owns and operates a chain of multiplex theatres.
The majority of the corporate results declared during the week were encouraging. Reliance, Bharti Tele and MTNL came out with strong performances. Siemens, MRPL, IPCL and Punjab National Bank are among the others who continue to perform well.
Hindustan Lever reported a rise in revenues which may indicate that the company is coming out of the difficult phase. Over the last few years, the consumer goods major have been affected by severe price wars and a slowdown in its market segments. However, profitability remains a problem as input costs have gone up.
Pharma companies continue to disappoint the markets with poor financial performance. This week, Ranbaxy reported a fall in quarterly profits even as the company struggled to keep revenues steady.
- Jet Airways announced its daily service to London from the month of May. The company has taken three long range Airbus A340 aircrafts to service the international routes. The company has also taken two more Boeing 737 aircrafts for domestic services. The proposed service to Kuala Lumpur has been delayed.
- Kingfisher Airlines has received its first Airbus aircraft and the airline plans to start operations next month. The first flight will be in the Bangalore-Mumbai sector and would cover all major cities by the year end. SpiceJet, another low cost airline, also received its first aircraft from Boeing out of the 20 it had ordered. The airline expects to commence operations soon.
- Staying with the airline industry, Air India has placed a mammoth order for 50 long range aircraft with Boeing. The deal is worth close to Rs30,000 crore and could possibly see a revival in Air India's fortunes. Its low cost brand Air India Express launched its operations to the Middle East during the week. Air India will progressively withdraw from the Gulf sector and Express will service these routes in future.
- Indian Airlines is planning to convert its subsidiary Alliance Air into a low cost carrier to be called India Shuttle. The company expects to launch the brand by the end of the year. Both Indian Airlines and Air India are planning IPO's to finance their expansion plans.
- Glenmark Pharma has entered into a licensing agreement with a Japanese company to license its asthmatic drug molecule for the Japanese markets. Glenmark expects $53 million from this deal by way of upfront payments and license fee.
- ONGC and Cairn Energy are establishing a joint venture for setting up an oil refinery and pipe lines in Rajasthan. The venture will have equal equity participation from both partners and the initial capital will be Rs100 crore.
- Sintex Industries will acquire a majority stake in Zeppelin India, which is the Indian subsidiary of a German company. Zeppelin manufactures plastic shelters for mobile hospitals, telecom transmitting towers etc. The target company reportedly has a turnover of Rs40 crore and is one of the largest manufacturers of such shelters in India.
Outlook: With some of the major companies having declared their results, markets have not many doubts about current corporate performance except for some software and pharma majors. However, the sustainability of such performance over the next few quarters is increasingly being suspected. Weakness in US markets is adding to the gloomy outlook. All eyes would be on the revision in US interest rates expected during the coming week.
*Disclaimer: The author doesn't have any position in the stocks specifically mentioned above at the time of writing this article. This analysis/report is only for the purpose of information and is not an investment advice. Readers are advised to consult a certified financial advisor before taking any investment decisions. While efforts have been made to ensure the accuracy of the information provided in the content the author or publisher shall not be held responsible for any loss caused to any person whatsoever.