Markets started the week on a very firm note as both frontline indices rallied over a per cent each and the Sensex close above the 11000 mark for the first time. Metal stocks and FMCG stocks were the market favourites for the day.
The indices paused on Tuesday after a volatile session and continued their rally on Wednesday. Technology stocks surged on fund buying while pharma stocks rallied on announcement of overseas acquisitions.
Thursday was settlement day for the derivative segment but the market rally continued undisturbed. The Sensex scaled 11300 and the Nifty crossed 3400 on a day which saw frenzied buying in select heavyweights in the closing minutes
The last day of the financial year was a subdued one for the markets as the indices moved in and out of gains in choppy trading. Some of the stocks which had seen substantial appreciation in recent sessions came under selling pressure and the indices closed with modest losses.
The Sensex gained 330 points or 3.01 per cent during the week and the Nifty added 125 points or 3.83 per cent over the week. Gains on the Nifty were higher as stocks like ONGC, TCS and SAIL gained during the week.
Mid-caps once again lagged the frontline stocks despite a sharp surge on Friday. After opening strong on Monday, the smaller stocks lost ground on Tuesday and remained flat on Wednesday. The recovery on Thursday helped build some momentum which saw significant gains in many popular mid-cap stocks on Friday.
The CNX Mid-Cap 100 index gained 117 points or 2.5 per cent during the week.
Domestic economic and regulatory action
- Infrastructure growth for the month of February 2006 bounced back to 5.6 per cent as compared to 0.8 per cent for the same month of previous year and 3.3 per cent for the month of January 2006. Sectors like cement, coal mining and electricity generation reported excellent growth rates.
Cement production increased more than 16 per cent while coal and electricity output rose by more than 9 per cent each for the month. Petroleum refining reported a growth of over 6 per cent. Crude oil production and steel output declined during the month.
Infrastructure growth for the period April 05 - February 06 stands at 4.5 per cent as compared to 5.8 per cent for the same period of previous year.
- The UN's economic commission for Asia has forecast a growth rate of 8 per cent for Indian economy for the next 2 financial years. The research unit said higher growth in agriculture sector at close to 3 per cent per annum would help sustain the growth. Services would continue to expand at 8.5 per cent while industrial growth is projected at 8 per cent. Inflation would be moderate at around 4 per cent.
The research body believes that higher oil prices are the single biggest challenge facing the Indian economy. Another $10 per barrel rise in oil prices would affect Indian economic growth by 0.5 per cent and pushing up inflation by another per cent.
- Wholesale price inflation for the week ended 18 March
declined to 4.06 per cent from 4.28 per cent reported for the previous week. Prices of primary food and non-food articles declined during the week. Inflation was at 5.45 per cent during the same week of previous year.
US markets, global economy and oil
- US markets had a subdued week as concerns about rising interest rates once again dominated the sentiment. The statement from the Fed indicating the possibility of further rate hikes and strong economic data supportive of such hikes led to a decline in stocks of financial sector and manufacturing companies. Technology stocks found favour from funds on expectations of higher business spending.
The Dow index closed the week with losses of nearly 1.5 per cent while the S&P 500 ended 0.6 per cent lower. NASDAQ managed to close with gains 1.2 per cent as major technology stocks like Google and Apple found buyers.
- As expected, the US Federal Reserve raised benchmark interest rates by 25 basis points to 4.75 per cent annually. The Fed indicated that further rate hikes may be required as economic growth remains strong and inflationary pressures may rise.
The Fed is widely expected to raise interest rate by another 25 basis points to 5 per cent per annum in its next meeting scheduled for 10 May. Employment levels, income growth and consumer spending in the US continue to be strong despite the weakening property market. All these would force the Fed to raise the rate at least one more time in May and maybe more in subsequent months.
- The Asian economic research commission of the UN said this week that another hike in US short term interest rate to 5 per cent could affect Asian economic growth by as much as 0.5 per cent. This impact would come with a lag, after a period of around 18 months.
The UN economic unit believes that revaluation of Asian currencies like the Chinese Renminbi is not the solution for reducing the current account deficit in the US. According to its projections, currencies of major Asian exporting countries should appreciate by as much as one-third, a very unlikely event, to halve the US deficit from the current 6 per cent of GDP. In case such a large revaluation happens, economic growth in Asian regions would decline by 2.5 per cent.
- The US economy is estimated to have grown between 4.5-5 per cent during the Jan-March quarter, according to various polls conducted among economists. The economy was expected to post higher growth rates as spending increased for rebuilding infrastructure damaged in last year's hurricanes. US consumer confidence for the month of March rose further on rising income levels and higher employment.
- The Japanese economy is forecast to have grown at an annual rate of close to 3.5 per cent for the financial year ended 31 March 2006. After many years of anaemic growth, the Japanese economy has gathered pace over the last year on higher consumer spending and exports. However, Japanese industrial production for February declined 1.7 per cent. This is seen as a one-month aberration after many months of rapid growth.
- Crude oil surged this week on rising concerns about supply disruptions in major producing countries. The UN Security Council asked Iran to stop uranium enrichment programme and the Iranian government said it would ignore the directive. This could possibly lead to sanctions on Iran and lower oil exports from Iran, unless the issue is resolved diplomatically.
- There are also reports of a possible increase in violence in Iraq which could affect oil exports from the country. Militants are keeping up the pressure in Nigeria which has already seen many attacks on oil pipelines and installations this year. Reports of a strike in Norway, one of the largest European oil producers, also impacted the markets.
Crude oil gained nearly $3 per barrel and crossed the $67 per barrel mark by Thursday. Declining US stocks of petrol despite high crude oil stocks, led to higher product prices as well. May futures on the NYMEX closed with gains of $2.37 per barrel for the week at $66.63 per barrel on Friday.
*Disclaimer: 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 whatsoever