five consecutive weeks of decline till the previous week
and some stability last week, the markets finally staged
a substantial recovery this week. Firm trend in most global
markets and expectations of sustained domestic economic
and corporate performance aided the pull back.
opened the week on a positive note on Monday and the frontline
indices gained over a per cent each. The uptrend was supported
by heavyweights like ONGC, Reliance Industries and Infosys.
saw some correction after three days of gains, mostly
on profit booking. Banking and engineering stocks came
under pressure and the indices closed with losses of nearly
1.75 per cent each.
uptrend resumed on Wednesday and the Sensex closed above
10000 for the first time in two weeks, helped by technology
stocks and Reliance Industries.
markets were very firm on Thursday and the domestic indices
surged further. Most sectors ended with gains and the
indices added more than 2.5 per cent each.
remained weak for most part of the session on Friday before
surging ahead towards the end of the day. Substantial
gains in ONGC and Reliance Industries helped the indices
to close more than a per cent each higher. The Nifty managed
to close above 3000 after a gap of more than two weeks.
Sensex added 516 points or 5.22 per cent during the week
and the Nifty gained 153 points or 5.3 per cent over the
The week belonged to mid-caps and small caps as they substantially
outperformed the large caps. Consensus view that the smaller
stocks have been beaten down considerably more attracted
buying interest. Even on Tuesday when the large caps corrected,
smaller stocks managed to close with only marginal losses.
CNX Mid-Cap 100 index closed the week higher by 276 points,
or 7.46 per cent. The small-cap index on the BSE gained
more than 13 per cent for the week.
economic and regulatory action
corporate sector is quite confident about sustaining
and even improving profitability this year, if the advance
tax figures are any indication. First instalment advance
tax receipts from the corporate have shown a very healthy
rise this year. Even the oil sector companies are understood
to have made advance payments on hopes of reporting
modest profits this year, helped by the price hike and
collections from personal income tax have also seen
a substantial jump this year, indicating sustained
rise in income levels. This should ease any concerns
over a slowdown in private consumption because of
rising interest rates. Higher interest rates may not
dampen demand for consumer durables and retail credit
including home loans, as long as income levels continue
direct tax collections so far during this financial
year have increased more than 75 per cent from the
same period of previous year. This should be good
news for the government and the finance minister remains
confident of reducing fiscal deficit to 3.8 per cent
from over 4 per cent during the previous year. Improvement
in the fiscal situation should make overseas investors
more confident and would help sustain investment flows
into the country.
expected, the market correction has affected many large
IPO's, which were scheduled to hit the markets. Almost
all of them, including the most high profile one from
DLF, have been postponed and merchant bankers are now
reworking their pricing and other strategies. Disastrous
listing of the recently concluded IPO's, most of which
were highly overpriced, has dampened the new issues
DLF and its merchant bankers remain confident of an
early launch of its IPO, it is speculated that the
issue would be delayed by at least a couple of months.
Most of the real estate stocks have declined substantially
from their peaks and it would have been very difficult
to pull off a large issue at rather steep valuations.
the draft prospectus for another high profile IPO
by Tech Mahindra has been filed with SEBI, it is likely
that the issue would be launched only after the market
market decline has also sharply reduced the number
of FCCB / GDR issues. There have been only a limited
number of overseas equity issue announcements since
the middle of May. Most of the previously announced
issues have been postponed. Some companies have even
cancelled preferential allotments announced earlier
as stock prices have fallen much below the announced
delays in launch of overseas and domestic issues are
unlikely to have any major impact on overall performance
of the corporate sector. Many of these issues were
aimed at mopping up resources when the market conditions
were extremely bullish and not to finance specific
projects or urgent capacity expansions. Companies
who need resources urgently would anyway go ahead
with their issues at much more reasonable valuations.
rose above 5 per cent for the first time in a year as
the impact of the recent fuel price hike reflected in
prices. Wholesale price inflation for the week ended
10 June increased to 5.24 per cent from 4.72 per cent
reported for the previous week. Prices of primary food
articles continued to go up during the week and the
government has announced a number of measures to bring
down prices of these items.
are divided on the outlook for metal stocks as international
commodity prices have also been volatile recently. Metal
stocks were among the worst hit in the market decline,
but some analysts are sceptical about them even at lower
prices have gone up this year on sustained demand
from major consuming countries like the US and China.
Though Chinese steel capacity has gone up considerably
over the last few years, sustained growth in demand
has prevented a glut. Chinese manufacturers have recently
agreed to a nearly 20 per cent rise in iron ore contract
prices for the current year, indicating robust domestic
steel demand in China.
some analysts believe that rising interest rates would
slow down investments in large projects, which may
slow down demand growth for steel. They expect US
steel inventories to rise later in the year, which
would dampen prices.
the Mittal-Arcelor merger goes through, manufacturers
may have a better say in steel prices. But in the
event of a genuine slow down in global demand, industry
consolidation may not be of much help in supporting
metal stocks have been considerably more volatile
than steel stocks over the last month. International
prices of copper, zinc and aluminium have corrected
substantially from their record highs seen earlier
this year. Unlike steel companies who have not yet
announced price cuts, domestic manufacturers of non-ferrous
have already effected a few rounds of price cuts.
rally in non-ferrous metals was mostly on projections
of capacity constraints, both current and projected.
Some analysts are now questioning forecasts of a sustained
rise in demand for non-ferrous metals leading to severe
capacity constraints. Once again rising interest rates
is the culprit, which may lead to a global economic
slow down and hence lower demand for metals.
current non-ferrous metal prices are substantially
higher than last year and nobody is anticipating a
steep fall from these levels. Even if current prices
sustain, non-ferrous companies would report a substantial
improvement in their performance for the current year.
But, much of this has already been discounted into
current stock prices and further upsides would depend
on commodity price movements.
markets, global economy and oil
markets were volatile during the week, as investors
remained uncertain about the extent of economic slowdown
and rise in inflation. After remaining subdued during
the first couple of days on mixed economic signals and
news flows, US indices rallied on Wednesday. Part of
the gains was given up on Thursday as doubts about a
slowdown re-emerged. Markets remained subdued on Friday,
despite some excitement on corporate mergers, on fresh
the week the Dow index declined close to one quarter
of a per cent while S&P 500 closed with losses
of over 0.5 per cent. Technology stocks were more
volatile and the NASDAQ index lost 0.4 per cent over
oil prices were weak during the early part of the week
on positive signs of a peaceful settlement to the Iranian
nuclear dispute. Prices remained below $70 per barrel
till Tuesday before recovering. The US government stepped
up its pressure on Iran and urged the Iranian government
to respond fast to a settlement proposal.
went past $70 by Wednesday and continued the up trend
on Thursday as well. Near month futures on the NYMEX
gained more than a per cent for the week to close
at $70.84 per barrel on Friday.
prices could double or even triple from current levels
in the event of any military action against Iran, according
to a senior Saudi Arabian official. Apart from a near
total stoppage of Iranian oil exports, military conflict
in the region would restrict exports from other countries
as well. Military action against Iran could also trigger
militant attacks on oil installations in the Middle
major consuming countries like the US can manage a
shortfall in Iranian exports from their strategic
reserves, it is the peripheral impact on exports from
other countries, which would drive up prices. Substantial
increase in oil prices would push up global inflation
and force further increases in interest rates.
efforts have so far shown positive results and Iran
has been offered a settlement package, which offers
incentives for diluting its nuclear programme. The
Iranian government has called the peace move a 'step
forward' and has asked for time to study the proposal
in detail. It is expected that negotiations would
start early next month. Statements by the US this
Iran to respond without delay are seen more as a pressure
tactic. However, the US government has not yet ruled
out the military option either.
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
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provided in the content the author or publisher shall
not be held responsible for any loss caused to any person