The week started on a firm note as the markets stretched the previous week's uptrend, helped by heavyweights like Reliance Industries and ONGC. Reliance Industries added a massive 5 per cent as expectations of a spectacular listing by RPL peaked.

ONGC carried the markets for the next two days, gaining close to 7.5 per cent in 2 sessions. The Sensex soared past 12600 by Wednesday and the Nifty went above 3750.

RPL listed on Thursday at around Rs100 as expected, but slipped and closed at around Rs86. This was a disappointment to most traders who were expecting the stock to settle above Rs100 in the short term. The usual selling pressure after such mega events was repeated and the indices slumped to close with losses of nearly 1.5 per cent each.

Hopes of a recovery on Friday were unsettled by a global correction triggered by a significant fall in the US indices. After a volatile session, the indices closed the day with losses of around 1.3 per cent each. .

Reliance Industries lost close to 9 per cent between Thursday and Friday while ONGC declined more than 4 per cent. Cement stocks were the worst performers with Gujarat Ambuja and ACC among the biggest losers.

The Sensex gave up 75 points or 0.61 per cent during the week and the Nifty lost 14 points or 0.38 per cent over the week.

Mid-caps were worse off than the frontline stocks for the week. Though they were relatively less affected by the decline towards the end of the week, gains during the early part of week were also lower. Property stocks continued their run up while tea plantation stocks surged earlier in the week only to give up later.

The CNX Mid-Cap 100 index lost 47 points or 0.9 per cent during the week.

Domestic economic and regulatory action

• The ministry of commerce is trying to browbeat the cement industry to bring down cement prices. The government's case is that cement prices have a significant impact on other sectors of the economy and hence runaway increases in price should be prevented. It believes that the industry can bring down prices without considerably affecting profitability.
  
  While accepting that the government should be concerned about possible cartel formation in key industries and abnormal price increases, the question remains as to why the cement industry has been singled out.
  
  Prices of most commodities have gone through the roof in recent years. Current operating margins of non-ferrous metal manufacturers may even exceed those of frontline IT services companies. Most of these companies have captive mines and the entire price rise goes straight to the bottom line. Has the government asked these non-ferrous metal companies to bring down prices?
  
  This episode has brought out the arbitrariness that often plagues government policies. Who decides which all commodities are excessively priced? Should some other ministry now move in to protect the interests of the cement industry? The government should desist from making such selective interventions and form the Competition Commission without delay to control market excesses.
  
  Now that it has shown its concern over rising cement prices, how is the government going to ensure a price reduction? There is speculation about export controls and other such measures. But if the demand sustains at these levels, retail cement prices are not going to come down significantly even if the companies cut their prices. The government would be promoting an active black market through these measures.
  
  
• Wholesale price inflation for the week ended 29 April increased marginally to 3.59 per cent from 3.54 per cent reported for the previous week. The rise in inflation rate was mainly because of higher prices of primary food products. Prices of manufactured food products, fuel and power remained almost unchanged during the week.

Industry developments

• The government's attempt to bring down cement prices has attracted considerable market attention and led to a steep fall in cement stocks this week. Large cap cement stocks like Gujarat Ambuja and ACC were among the major losers for the week. Mid-cap cement stocks were worse off as any decline in prices would affect their margins more than the larger companies.
  
  The government has accused the cement industry of 'profiteering' and says the rise in cement prices is much higher than the increase in input costs. It has given two days to the industry to come up with its own plan to bring down prices, failing which the government would take necessary steps on May 15.
  
  Cement prices would definitely be affected in the short-term as the government can be expected to have its way. Most likely, cement manufacturers may announce modest voluntary price cuts next week. Over a longer period, prices have to go up if demand grows as expected.
  
  Cement stocks had run up substantially as market analysts had forecast a sustained rise in cement prices for the next few years. This upbeat outlook may change though demand projections would remain strong. Hence, a deeper correction in cement stocks cannot be ruled out.

US markets, global economy and oil

• After trading sideways during the early part of the week, US markets slipped on Thursday on renewed concerns that the rate hikes by US Fed would continue without a pause. US markets had rallied in recent weeks on expectations of stable interest rates and the Dow index was very close to its all-time high set in 2000. Subdued guidance and revenue warnings from some of the major technology manufacturing companies affected technology stocks considerably.
  
  
• The US Fed raised short-term interest rates by another 25 basis points this week, as expected. The Fed rate at 5 per cent is at a nearly 5-year high and the latest is the 16th consecutive rate hike by the Fed after mid-2004.
  
  Markets were expecting an indication from the Fed that it would hold rates at the current levels for some time, before considering further hikes. However, the statement issued by the Fed was evasive on the issue, leaving the options open for the central bank.
  
  Most of the factors affecting US interest rate policy like GDP growth, strength of the labour markets and oil prices all point to the likelihood of further rate hikes rather than a pause. Most economists and fund managers are now veering to this view and expects Fed rate to be at 5.5 per cent by year-end.
  
  
• Crude oil prices were weak during the early part of the week and went below $70 per barrel. The standoff over the Iranian nuclear dispute showed some signs of cooling off which prompted funds to exit their long positions in crude oil. However, expectations of rising demand for petrol in the US in summer months led to a bounce back on Wednesday.
  
  Near month futures on the NYMEX gained further on Thursday and closed at $73.22, higher by around 4 per cent from previous week's close. Oil futures are trading below $72.5 in European trades on Friday.
  
  
• The International Energy Agency (IEA) says higher prices are affecting demand for petroleum products in the US. The agency said the slow down in demand growth would lessen the pressure on OPEC nations. IEA has reduced the forecast demand for OPEC oil for the current year to 29.2 million barrels per day from 29.4 million barrels. The agency expects global demand growth of only 1.25 million barrels per day for the current year, lower than its earlier forecast.
  

*Disclaimer: The author may have positions in the stocks 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.