It was a very eventful week for the markets as three software majors came out with contrasting results. While TCS disappointed in a major way and Wipro was par for the course, Satyam surprised the market with a strong set of numbers.

On Monday, the markets extended the weak trend from the previous week and the indices lost over a per cent each following the weakness in US markets and the Asian meltdown. Indian markets were better off when compared to other Asian markets like Japan which lost over 3 per cent.

First out with results was TCS on Tuesday and the market was really disappointed with the drop in profits for the last quarter ended March 2005 as compared to the previous quarter. The flat revenues and drop in operating margins saw the stock being beaten down over 8 per cent on that day. The markets, which were trading firm, declined after the results were announced.

Wednesday saw sharp swings in the indices as the weakness in tech stocks were countered by buying in old economy stocks. The indices gained over a per cent as markets shrugged of some of the disappointment. Gujarat Ambuja announced a liberal one for one bonus and also a stock split, which helped overcome less than encouraging results from the company.

Thursday was Satyam's day as the company, least fancied among the fabulous four, surprised with its results. Strong growth in last quarter profits and revenues as compared to the third quarter and a confident guidance saw the stock gaining over 5 per cent.

On Friday, the last of the lot Wipro generated some excitement with a one for one bonus even as results were nothing spectacular. A bounce back in tech stocks like HCL Tech and TCS along with some of the banking stocks helped the indices to close the weak on a positive note.

US markets went through one of the most volatile weeks in recent years. It was a week of heavy action with many major companies coming out with first quarter results. While some of the old economy companies like GM and Ford disappointed, many technology companies declared amazing sets of numbers.

Google led from the front with a more than five fold increase in profits followed by Intel and Motorola among others. In Europe, strong results from telecom equipment manufacturers Nokia and Ericsson enthused the markets. Both companies have fought back strongly to regain market share as telecom spending grew dramatically in emerging economies like India and China.

But a mixed set of economic data kept investors uncertain about the sustainability of corporate earnings. While unemployment claims in the US are at their lowest in almost 4 years, a sharp increase in consumer prices refueled worries about a slowdown in consumer spending. Strong words from the US Fed chairman about the growing US trade deficits, an issue he was less vocal about till now, added to the market worries.

Crude futures, which had dipped to around $50 to a barrel the previous week, rose again on fresh worries about shortage of refined products. On Friday, NYMEX crude futures for June delivery crossed $55 to a barrel, an increase of over 8 percent for the week.

The crude futures market has become so active that any news on supply or demand leads to extreme volatility. The decline in the previous week was after the International Energy Agency said it expects world demand to grow at a lower pace than last year. After growing by 2.6 million barrels per day in 2004, the IEA expects the demand to grow by 1.8 million barrels in 2005.

All that changed this week as some of the US refineries announced unplanned shut downs to avoid breakdowns because of high utilisation. Crude output by Saudi Arabia is at a record high of 9.6 million barrels per day and many other oil producing countries have also hiked output. After crude production increased to ease supply concerns, oil bulls are selling the stretched refining capacity theory to keep prices high.

Regular readers would be wondering why so much importance is given to the happenings in US markets in a weekly analysis of Indian stock market action. We live in an increasingly integrated world and the financial markets are among the most interlinked. Market performance is getting increasingly influenced by global sentiments and capital flows. The spread of weakness from US markets to other global markets last week gives enough support to this view.

Besides, Indian software companies derive a large part of their revenues from the US. Any slowdown in the US would affect these companies very hard. Such an event would have a disproportionate impact on our markets as the sentimental influence of these companies on our markets is very high.

Crude is probably the single most important determinant of global economic well being. Also, the most valuable Indian company happens to be a crude producer. There are four other large listed Indian companies, all of them including Reliance among the 500 largest companies worldwide, who are in the petroleum business. Hence the importance given to crude oil in this column.

Inflation for the week ended 9 March rose to 5.48 per cent from 5.26 per cent the week before. The rebound in crude prices may force the government to announce the much delayed fuel price hike shortly. Policy makers will have a tough job in managing inflation and keeping the economy, which is showing some signs of a slow down, in its growth path.

Indian meteorological scientists have forecast a 95 per cent probability of normal monsoons this year. Credibility of such forecasts has always been in doubt after being off the mark many times previously. This time around, the scientists are reported to have adopted a far more advanced model with inputs from four other advanced research institutions. This forecast is reportedly also in line with the predictions of global weather watchers.

A good monsoon should see the agriculture sector growth closer to 4 per cent from the paltry 1.1 per cent during last year. This would definitely keep the overall growth around 7 per cent, even if industry and services slow down marginally. The Centre for Monitoring Indian Economy (CMIE) has forecast a growth rate of 6.6 per cent for the current year on the back of higher agriculture output.

Corporate moves

• Tata Steel is reportedly in talks to gain control over a 3-million tonnes per annum steel plant in Iran. The company is looking at initially operating the plant on a management contract before taking over ownership. The company has also submitted its formal proposal to the Bangladesh government for setting up a 2.6-million tonnes per annum steel plant in that country. With the proposed new plant in the state of Orissa, Tata Steel aims to increase its capacity to 15 million tonnes per annum by the year 2010. The company is reportedly studying the Pakistan market as economic resurgence in that country would boost steel demand.
  
• Sterlite Industries, one of India's largest producers of copper and a part of Vedanta group, plans to increase its smelter capacity to 300,000 tonnes per annum from the current 180,000 tonnes. After the expansion, the company would reach the top spot in the country in copper production and will be one of the largest worldwide.
  
• Essar group has signed an agreement with the government of Orissa to set up a 3 million tonnes per annum steel plant in the state ant an investment of close to Rs10,000 crore. The proposed investment also includes a power plant with a capacity of 1,000 MW.
  
• South India-based Murugappa group has also signed an agreement with the Orissa government to set up a steel plant. The proposed plant with a capacity of over a million tonnes per annum would involve an investment of close to Rs3,000 crore.
  
• Reliance Industries reported yet another gas find in the Krishna- Godavary basin. The recoverable deposits are yet to be assessed. In a related move, the company is planning to join hands with ONGC to set up joint gas production facilities and pipelines in the KG basin.
  
• 3i Infotech, an associate company of ICICI Bank, made a weak debut on the bourses this week. The stock, issued at Rs100 per share, closed below the issue price on Friday. The issue was aggressively priced and failed to receive an enthusiastic response. The company focuses more on the Asian and African markets and has a substantial proportion of its revenues coming from products rather than services. With its unique business model, this one may do well in the long term as it is more or less insulated from a slow down in the advanced markets. The company, which started as the in-house software provider of ICICI Bank, has the expertise in developing banking solutions for emerging markets. However, it is fully valued at current prices.
  
• KEC International has won a large contract from Ethiopian Electric Corporation worth $53 million. The order is for construction of power transmission lines and base stations in that country.
  
• Shoppers Stop, one of the largest organised retailing companies in the country and promoted by the Raheja group, announced its IPO this week. The price band has been fixed between Rs210 to Rs250 per share. The company is planning to aggressively increase retail floor space in the next few years. Unlike Pantaloon, the country's largest organised retailer, the company derives a large proportion of its revenues from apparel sales. In apparels too, the company is focusing more on low margin brands of major apparel companies rather than in-house brands which offers better margins. However, the Shoppers Stop brand has a definite premium image which could be a major asset. The company has no plans to enter the hyper market retailing business and says the promoters may set up a separate venture for the same. The issue is richly priced when compared to its peers.

Outlook: With the technology results out of the way, the markets would now be focusing more on domestic economic data and global market trends. Manufacturing and commodity companies, except the oil marketing companies, are expected to deliver good numbers in the next few weeks. Market direction would depend on clues about sustainability of corporate performance in the next few quarters.

Other articles by Rex Mathew

List of general reports on markets

List of general reports on finance