A week of consolidation

Markets rode the momentum built up last week and continued to seek new ground in the first two trading sessions of the week. Buying support from foreign investors as well as domestic mutual fund activity helped the market to post all time highs. Wednesday saw a small decline on profit booking and on Thursday our market bucked the weak trend in most of the global markets. The market gave up most of its gains on Friday on worries of foreign inflows turning negative. The indices closed the week with very marginal gains.

World markets also saw a positive trend throughout the week except for Thursday when worries about rising oil prices and inflation pulled the indices down. In the US, Dow Jones index moved closer to the 11,000 mark while in Japan the NIKKEI is close to 12,000.

Crude continued to climb to record levels raising fears of worldwide inflation. The NYMEX light sweet crude for April delivery crossed $55 to a barrel after declining on Thursday. A major oil and gas discovery in Iran had no impact on oil markets as it takes years to develop new fields.

The ever increasing energy demand in emerging economies like China and India has pushed oil prices to levels not seen after the last oil crisis. Oil companies failed to make fresh investments in increasing production in the last decade, as oil prices remained low. Oil cartel OPEC argues that current prices, though high in absolute terms, is still not high in real terms as the US Dollar has declined close to 30 per cent. The emerging economies, from where most of the oil demand is coming, are forced to absorb higher energy costs as sustaining growth rates is very important to such countries.

Inflation for week ended 26 February inched up marginally to 4.95 per cent as compared to 4.83 per cent the previous week. The increase was mainly on account of increase in prices of manufactured goods while prices of primary articles declined. RBI governor raised concerns over the risk of inflation during the next fiscal as crude oil continues to remain firm.

Economic growth continues to chug along nicely during the current fiscal. The Index of Industrial Production is up 8.4 per cent for the first 10 months of the year as compared to 6.7 per cent recorded last year. The rise in manufacturing output of 9.3 per cent for the month of January this year, points to the increasing momentum in this sector. Capital goods output is also rising indicating additional investments in capacity generation. The RBI has indicated that it may revise upwards its early growth estimate of 6.5 per cent.

Credit off take from commercial banks continues to post robust growth. The two largest banks, SBI and ICICI Bank, are experiencing unprecedented credit demand from industry. ICICI Bank estimates investments of Rs250,000 crore by industry over the next few years.