indices extended their gains to the third week after five
weeks of losses in May and early June. The week's global
rally in equities was only because of some soft language
used by the US Fed in its statement following the interest
rate hike announcement.
week started on a disastrous note as the indices took
a nosedive on Monday, each ending 3.5 per cent lower.
Investors and traders once again started losing confidence
as much of the previous week's gains were lost in a single
session. Metal stocks and heavyweights, such as ONGC and
Reliance Industries, lost heavily that day.
on Sunday, the markets gave up all the initial gains and
closed flat during a one hour special session conducted
to check the upgraded hardware systems at the NSE.
staged a modest recovery on Tuesday, helped by a recovery
in Asian markets. On Wednesday, indices recovered from
a two per cent fall in morning trades and closed with
were firm for most of the session on Thursday ahead of
the important US interest rate announcement. They dropped
sharply in the closing hour and closed with very modest
saw one of the biggest single day advances ever, as the
frontline indices ended with spectacular gains of 4 per
cent each. The global rally, which came on hopes of an
end to US interest rate hikes, gave a substantial lift
to the indices.
Sensex added 208 points or 2 per cent during the week
and the Nifty gained 85 points or 2.8 per cent over the
Mid-caps and small caps corrected this week after substantially
outperforming the large caps during the previous week.
They declined during the first three days of the week
before staging a modest recovery on Thursday. Gains on
Friday, however, were not enough to wipe out the losses
suffered during the earlier part of the week.
CNX Mid-Cap 100 index closed the week lower by 29 points,
or 0.73 per cent.
economic and regulatory action
remaining in deficit for the first three quarters of
the financial year 2005-06, the country's current account
balance showed a surplus of $1.8 billion for the fourth
quarter. This significant turnaround was achieved through
a combination of acceleration in export growth, decline
in import growth and sustained rise in net invisibles.
growth improved to 22.9 per cent during Jan-March
2006 as compared to 20.7 per cent for the same quarter
of previous year. Import growth was substantially
lower at 20.1 per cent as against 59.1 per cent. Net
invisible receipts increased 22.6 per cent during
the quarter, helped by a 40.7 per cent jump in receipts
from software exports and 16.9 per cent rise in remittances
by those working abroad.
current account turnaround during the fourth quarter
has helped limit the deterioration in the external
account for the full year 2005-06. Though the current
account deficit for the full year has nearly doubled
to $10.6 billion from $5.4 billion during the previous
year, the deficit is still much lower than earlier
account situation during the current year would depend
on sustained strength in exports, both merchandise
and invisibles like software and other services. Import
growth may not decline further, as long as oil prices
remain high and domestic consumption remains strong.
capital account receipts for the full year 2005-06 has
declined to $25.6 billion from $31.5 billion during
the previous year. This would not have been normally
expected during a year which saw increased FDI and FII
flows into the country.
major reason for the decline in net capital receipts
was an outflow of $1.4 billion under other banking
capital as against and inflow of $4.8 billion during
the previous year. During the financial year SBI repaid
its India Millennium Deposits (IMD) which saw significant
corporate sector became less interested in overseas
debt during the year and external commercial borrowings
(ECB) declined substantially to $1.6 billion from
$5 billion during the pervious year. Short term borrowings
also declined to $1.7 billion from $3.8 billion.
flows increased to $5.7 billion during 2005-06 from
$3.2 billion for the previous year while FII inflows
jumped to $12.5 billion from $8.9 billion. NRI deposits
increased to $2.8 billion from a net outflow of nearly
$1 billion for the previous year.
price inflation for the week ended 17 June increased
to 5.44 per cent from 5.24 per cent reported for the
previous week. Prices of fuel and primary food articles
sustained the up trend during the week.
bidders, including 8 foreign companies, have submitted
a total of 54 bids for the 10 coal bed methane (CBM)
blocks which were offered recently for exploration and
production. This is a substantial improvement from the
earlier 2 rounds of bidding for CBM blocks, which saw
relatively lacklustre interest.
improved interest is mostly because of reasonably
large CBM discoveries made earlier. Companies like
ONGC and Reliance, which were awarded exploration
blocks in the earlier rounds, have discovered CBM
reserves in four blocks with total in place reserves
in excess of 6 trillion cubic feet. Commercial production
from these blocks may start as early as next year
and average production could increase to as high as
10 million standard cubic metres per day by 2010.
are also reports that the in place natural gas reserves
in one of the fields discovered by Reliance in the
KG basin has been re-assessed to more than 35 trillion
cubic feet. The revised reserves is nearly three times
the original estimate and, once finally verified and
confirmed, would significantly increase the country's
discovered gas reserves. It would also lead to a significant
revaluation of the oil and gas assets of Reliance
global oil companies are also showing much more interest
in getting domestic oil exploration blocks in the
next round of bidding under NELP. Some of them have
tied up with large domestic companies while others
are expected to bid on their own.
recent discoveries and rising interest in exploration
blocks indicate that there has been a reassessment
in the hydrocarbon potential in both offshore and
onshore blocks in the country. Companies which have
already made investments in domestic oil & gas
exploration would find significant opportunities in
the medium term. High energy prices would ensure that
returns from these investments are significant.
markets, global economy and oil
markets had a good week as the indices rallied on Thursday
on renewed hopes that Fed would take a pause in its
rate hike cycle. The final revision of Jan-March quarter
US GDP growth to 5.6 per cent led to expectations that
corporate profitability growth would be sustained. Corporate
developments were also positive with some large merger
the week the Dow index rallied 1.5 per cent while
S&P 500 closed with gains of over 2 per cent.
Technology stocks were better off and the NASDAQ index
gained close to 2.5 per cent over the week.
widely expected, the US Fed raised short term interest
rates for the 17th time by 25 basis points to 5.25 per
cent annually. A significant toning down of the language
in the statement released by the Fed has raised considerable
hopes that the US central bank may be close to the end
of its rate hikes.
statement said further rate hikes 'maybe needed' if
economic data point towards rising inflation and no
significant slowdown in economic growth momentum.
This is a major change from earlier statements when
the Fed usually stated that future rate hikes are
probably required to rein in inflation.
Fed is expecting economic growth in the third and
fourth quarters to slow down enough so that price
pressures ease on their own without further policy
action. Even then, the Fed may have to raise rates
by another 25 basis points in August as most recent
economic data continue to give mixed signals.
upward revision of first quarter GDP growth number
may indicate that part of the momentum may spill over
into subsequent quarters and growth rate for the just
concluded quarter may be higher than expected. Consumer
spending remained robust with a 0.4 per cent rise
for the month of May.
consumer inflation for the Jan-May period is above
5 per cent compared to around 3.5 per cent for the
same period of previous year. Core inflation, excluding
food and fuel prices, has inched above 3 per cent
and should keep the Fed worried. Employment growth
has not shown any signs of slow down so far and should
help sustain consumer spending.
real risk is that the US economy would not cool down
as much as expected and oil prices would rise further
which would push up inflation. In such a scenario,
the Fed would be forced to continue with its rate
hike and some analysts expect the Fed rate to be around
6 per cent by the end of the year or early next year.
That would surely exert considerable pressure on equity
oil prices recovered substantially during the week on
multiple news flows and developments. Concerns over
rising violence in the Middle East kept prices on an
up trend during the early part of the week. Aggressive
statements from Iran and western countries over the
Iranian nuclear dispute also led to a rally in oil prices.
US and other western countries want Iran to respond
at the earliest to a peace deal proposed by some European
countries. However Iran wants more time, claiming
that it needs to study the proposal in detail before
coming out with a response. Towards the end of the
week, Iran rejected a fresh ultimatum and said it
would respond only by August.
Prices went past $73 by Thursday as US inventory of
and refined products were lower than expected. Near
month futures on the NYMEX gained $3 per barrel for
the week to close at $73.85 per barrel on Friday.
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