week started on a most disastrous note, shaking the confidence
of even the few who remained hopeful after the previous
week's fall. After opening with gains, the indices dropped
more than 10 per cent and trading was suspended by the
exchanges for one hour.
was only the second such trading suspension in history
and, as usual, was triggered by rumours of a payment crisis
at major brokerages. Traders sold further to meet margin
pressures and frontline stocks fell like nine pins in
the absence of any buying support. Many large cap stocks
were down more than 20 per cent each when trading was
recovered as trading resumed in the afternoon and finally
closed the day with losses of around 7 per cent each.
saw a sharp bounce back as most Asian markets recovered.
Frontline indices closed the day with gains of nearly
3 per cent each.
recovery was short-lived as the markets gave up all the
early gains and closed with substantial losses on Wednesday.
The volatility continued on Thursday as the indices pulled
back after early losses on short covering on the last
day of futures settlement.
across global markets, including the US, helped the indices
to notch up strong gains in early trades. Part of the
gains was given up in the afternoon as traders booked
profit ahead of the weekend.
Sensex gave up 130 points or 1.19 per cent during the
week and the Nifty lost 37 points or 1.14 per cent over
Mid-caps were worse off than the frontline stocks on Monday
and the mid-cap index had lost more than 13 per cent when
trading was suspended. The recovery in smaller stocks
over the week was slower than large caps and many mid-caps
are yet to recover from their lows to any significant
CNX Mid-Cap 100 index lost 128 points or 2.79 per cent
during the week.
economic and regulatory action
NCAER has come out with its initial GDP growth forecast
for 2006-07. The economic think-tank expects the economy
to expand at 7.7 per cent as compared to 8.1 per cent
during the previous year. It has forecast lower growth
rates for all major sectors during the current year.
fuel prices and interest rates are the main reasons
for lowering the growth rate forecast. Retail fuel
prices would be increased shortly and the RBI is expected
to raise short-term interest rates in July.
rate for industry is forecast to come down to 8.3
per cent from 9 per cent during the previous year.
The services sector would grow at a marginally lower
9.6 per cent as compared to 9.8 per cent for 2005-06.
weather department has predicted a slightly lower
than average monsoon, despite the early onset. This
has prompted NCAER to forecast agricultural output
growth at 2.1 per cent as compared to 2.3 per cent
for the previous year.
OECD is even less bullish on the prospects for the Indian
economy for the current year. In its economic outlook
released this week, the OECD expects Indian GDP growth
to decline to 7 per cent for 2006-07.
organisation said part of the growth experienced by
India during the last three years was cyclical in
nature, which may reverse itself. Interest rates are
expected to go up during the current year as the RBI
adopts more policy tightening to ward off inflation.
surprisingly, the OECD says the slowdown would come
because of supply concerns rather than a drop in demand.
It says some sections of the economy are seeing a
slowdown in output because of capacity constraints.
Further increases in interest rates and tighter fiscal
policy measures by the government would hamper additional
investments in capacity.
finance minister stated in parliament that core inflation,
excluding fuel and food prices, has shown a secular
decline. The government is confident that wholesale
inflation for the current year would remain below 5
per cent even if retail fuel prices are increased.
price inflation for the week ended 13 May increased
to 4.32 per cent, the highest in more than two months,
from 3.96 per cent reported for the previous week. The
rise in inflation rate was mainly because of higher
prices of vegetables, pulses and food grains. Prices
of select manufactured products also rose modestly during
markets, global economy and oil
markets maintained the weak trend during the early part
of the week. An attempt at recovery on Tuesday was beaten
back by an afternoon sell-off before the indices finally
closed with marginal gains on Wednesday. Thursday saw
a strong recovery and the up trend was sustained on
Friday as well.
Dow and S&P 500 indices gained more than a per
cent each while the NASDAQ ended nearly 0.5 per cent
higher for the week.
IMF believes monetary tightening by major central banks
across the globe is required to ensure sustained growth
of the global economy. Most major economies continue
to witness strong growth momentum and some of them are
facing capacity constraints. As commodity prices are
also at record levels, inflationary pressures would
continue to rise and, if unchecked, could threaten growth
oil prices were volatile for most of the week, but finally
closed with gains. Even though US oil inventories continued
to rise during the previous week, some of the supply
concerns persisted. Supplies from Iraq could get disrupted
if some of the political groups go ahead with their
are in the process of putting together a new deal
to avert a crisis over the Iranian nuclear programme.
Countries like the US and the UK are still maintaining
a tough stand, but Russia and China would prefer a
more accommodative approach. Iranian leaders reiterated
this week that they would continue their nuclear programme,
which they claim is for peaceful purposes.
OPEC is meeting next week to consider production quotas
for member countries. Though some of the more aggressive
members like Venezuela are arguing for a cut in output,
the oil cartel is likely to keep current production
levels. Earlier this month OPEC had stated that there
is excess supply in the market, which led to a decline
in crude oil prices.
month futures on the NYMEX closed the week at $71.37,
higher by around 4 per cent from previous week's close.
government believes that it won't be easy for Iran to
cut off oil exports in the event of a conflict with
western countries over the nuclear issue as the country
is heavily dependent on oil revenues. Oil exports constitute
more than 80 per cent of Iran's total export revenues
and a significant portion of government revenues. Higher
oil prices have led to a revival in economic growth
in the last couple of years and the country needs to
sustain these growth rates to achieve domestic stability.
if Iranian oil is taken off the market, US government
officials estimate that major consuming countries
could handle the situation. Oil stockpiles in member
countries of International Energy Agency (IEA) are
enough to take care of a supply disruption in Iran
for up to 4 years. However, the psychological
impact of such a disruption on the oil markets would
be high and would most certainly push prices closer
to $100 per barrel.
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