The major pull back over the last couple of weeks is finally
facing some resistance. Most of the gains were in anticipation
of good first quarter numbers, which would start coming
out from next week. As usual traders have decided to book
profits ahead of the event, which led to the weakness
towards the end of this week.
opened the week on a firm note and sustained the uptrend
from last Friday. Helped by heavyweights ONGC and Reliance
Industries, the indices overcame initial volatility and
closed with decent gains.
a minor correction on Tuesday, the indices surged on Wednesday
and ended with gains of 2.5 per cent each. Steel and engineering
stocks led the rally and ended with significant gains.
saw some profit booking as most of the frontline stocks
came under pressure. The indices recovered in early trades
on Friday, only to slump in the afternoon and end with
losses of around 2.5 per cent each.
Sensex lost 99 points or 0.93 per cent during the week
and the Nifty declined 52 points or 1.66 per cent over
Mid-caps and small caps continued their correction for
the second week. They were subdued even when the frontline
stocks rallied. The CNX Mid-Cap 100 index closed the week
lower by 61 points, or 1.55 per cent.
economic and regulatory action
government was forced to suspend its disinvestment programme
in Nalco and Neyveli Lignite after a partner in the
ruling coalition threatened to pull out of the government.
When announced last month, the disinvestment move was
seen a sign of new found assertiveness in the government
on the face of strident opposition to reform moves from
the left parties.
When they were not able to force the government to drop
such policies, the left parties have utilised the services
of some of the regional parties who are ideologically
closer to the left. Competitive politics in Tamil Nadu
and the wish to be seen as labour-friendly also encouraged
the DMK to issue an open threat to the government.
Though the government has avoided a further escalation
of tensions and mistrust in the ruling coalition by
backing off, the incident has brought forth the lack
of coordination among the coalition parties. Such incidents
create an environment of political uncertainty which
can affect economic decision making. There were rumours
that the prime minister is thinking of resigning after
the decision. Smooth governance, especially in a coalition
set up, requires considerable coordination and hopefully
the situation would improve in future.
government should also be more pragmatic about such
controversial decisions which are completely unacceptable
to its own allies. Now that it has failed to convince
the left parties about the need for drastic reforms
in many sectors, the government may take a more conciliatory
stand and try to achieve the best possible without pushing
the country into political uncertainty and a mid-tem
Divesting 10 per cent each in two companies would not
have much of an impact on government finances. It would
not have changed anything at these companies as the
government would have still held majority stakes. When
that is the case, was the government decision to disinvest
worth the risk of a public confrontation with its own
price inflation for the week ended 24 June declined
to 4.84 per cent from 5.44 per cent reported for the
markets, global economy and oil
markets remained relatively flat as the trading week
was shortened because of independence day holiday. Indices
were firm on Monday, but declined considerably on Wednesday
as trading resumed. They recovered and erased part of
the losses on Thursday on positive corporate news flows.
Technology stocks were weak as major stocks like Apple
and eBay came under pressure on negative developments.
European Central Bank (ECB) left key interest rates
unchanged at 2.75 per cent per annum at its meeting
this week. The Bank of England, UK's central bank, also
decided to leave interest rates unchanged
However inflation in the Euro area remains above 2 per
cent, above the target zone set by ECB, and may prompt
a rate hike by next month. Economic growth in major
European countries like Germany remains reasonably strong
and high oil prices would continue to add to inflationary
On its part, the ECB said it is keeping 'strong vigilance'
against inflationary pressures. Most economists now
expect the ECB to raise interest rates to 3 per cent
per annum by next month and to 3.5 per cent by the first
quarter of 2007.
oil prices maintained the up trend this week after North
Korea conducted missile tests and Iran refused to budge
from its position despite increased pressure from western
countries. Military action by Israel in the Gaza strip
also heightened concerns of fresh tensions in the Middle
Prices went past $75 per barrel by Wednesday and sustained
that level on Thursday as well. Near month futures on
the NYMEX is trading around $75 per barrel in European
trades on Friday.
investments in crude oil production would start yielding
results by next year and would lead to an increase in
output, according to a survey conducted among oil analysts.
Along with a decline in demand growth, this would exert
pressure on crude oil prices. For calendar year 2007,
average crude oil prices are expected to decline to
$60 per barrel.
However, average prices for the current year have been
revised upwards to $67 per barrel by the analysts covered
under the survey. Though demand growth is expected to
remain at the same levels as last year, output growth
is expected to slow down - especially from OPEC countries
Possibility of hurricanes hitting oil installations,
like last year's
Hurricane Katrina, would exert upward pressure on prices.
The Iranian nuclear dispute also has considerable bearing
on crude oil prices. However if the Iranian issue is
settled peacefully and hurricane activity is low this
year, then average prices would be lower than anticipated.
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
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provided in the content the author or publisher shall
not be held responsible for any loss caused to any person