Given the sustained pressure on the government from political quarters for more populist policies, the market was expecting some tough revenue generating measures in the budget. After the build-up in February, most market men were expecting a deep correction post-budget, which has generally been the past experience.

The budget turned out to be a masterful exercise in managing expectations, both of the right and the left. The restructuring of personal income tax slabs and the fiscal incentives to divert savings into more productive instruments like equity-linked mutual funds would give a major fillip to consumer demand as well as capital formation.

The market welcomed the budget wholeheartedly with a big rally on budget day. The momentum build up helped the indices to cross pervious resistance levels and record lifetime highs. Worries on the fiscal front and industry complaints about the regressive nature of 'fringe benefits tax' were brushed aside on aggressive buying by both domestic and foreign investors. The Sensex closed the week at 6850 and the Nifty at 2148, all time high closing level for both indices.

World markets also remained buoyant with the US indices hitting a three-and-a-half-year high on Friday. European markets are also at three-year highs despite weak economic forecasts, while Japan is at an 8-month high. US Fed chairman in his Congressional testimony was generally positive in his outlook for the US economy and gave a relatively stable outlook for the US Dollar.

The US economy added more than a quarter of a million jobs in February, double that of January. The job growth was aided by strong growth in services and, surprisingly, positive figures in manufacturing as well. Manufacturing and capital goods orders posted growth even as consumer confidence level showed a marginal decline. A strong US economy is critical for the continued growth of emerging economies especially since Europe, with the exception of UK, continue to remain sluggish.

A strong US economy and a stable Dollar are critical to Indian textile exporters who are scrambling for export markets in the post quota regime, facing aggressive Chinese competition. Indian IT companies can expect larger IT spends by US corporations and a stable price environment. Robust job growth in the US can stifle anti-outsourcing noises within US.

Crude continued its month long rally with NYMEX light sweet closing at $53.76 to a barrel for the week. This rally is seen as more on account of increased hedge fund activity in crude futures than supply worries. Statements from OPEC about crude prices going up to as high as $80 over the next two years supported the rally. With winter receding and relatively stable oil flows from the Middle East, the risk of a runaway rise in crude prices is limited.

The efforts of Russian government to consolidate its oil assets in the public sector seems to be succeeding with the merger of state oil firms Gazprom and Rosneft this week. An increase in output from Russia, which is not an OPEC member, could have a calming impact on prices.

Inflation continued its downward trend with the figure for week ended 19 February at 4.83 per cent. However, if crude oil continues to remain firm making a hike in petroleum retail prices inevitable we may see price levels trending higher in coming weeks. The price of Indian basket of crude hit an all time high of over $46 this week. Continued rally in commodity prices, especially metals, would add to the pressure on prices.

RBI announced the much anticipated road map for banking reforms on Monday. RBI has taken a cautious approach to foreign investments in the banking sector by preferring to allow a more open environment only in 2009. Till then foreign banks will be allowed to take control of only weak and under capitalized private banks. They are free to set up wholly owned subsidiaries with a minimum capital of Rs300 crore. Domestic corporate houses have also been allowed to pick up note more than 10 per cent stake in private banks.

FII Inflows

FII's were aggressive buyers right throughout the week. They were net buyers to the tune of more than Rs500 crore even on Tuesday when the market actually went down. The FII inflows have crossed Rs10,000 crore so far this calendar year. This has been facilitated by negotiated block deals for large chunks of equity in many frontline stocks.

Corporate moves

Tata Motors acquired a 21 per cent stake in a large Spanish bus manufacturer with an option to buy 100 per cent. SBI indicated its intention for more overseas acquisitions and possibly a domestic acquisition as well. Crompton Greaves acquired a Belgian transformer manufacturer to gain access to western markets. Auto ancillary player Bharat Forge, pharma major Lupin and medical electronic devices manufacturer Opto Circuits also announced plans for overseas acquisitions. Online brokerage Indiabulls completed its GDR issue while Indian Overseas Bank announced a GDR issue. The Indian Express Group acquired a 10 per cent stake in Mid-day Multimedia. The IPO of cosmetics company Emami opened this week while Punjab National Bank announced the price band for its proposed issue.

Prime movers this week

ONGC: The stock has been a rank under performer over the last eight months as oil prices declined and also on worries about the subsidy burden. The stock managed to go past its trading band and post close to 6 per cent gains over the week. Its overseas exploration subsidiary ONGC Videsh has been aggressively pursuing oil assets abroad. The company may get a 49 per cent stake in a major oil field in Venezuela and it is also negotiating major investments in Russia. ONGC also announced a major gas find in the Krishna-Godavari basin this week. Our seemingly insatiable energy demand would only open up more opportunities for ONGC while the subsidy burden continues to be a major worry factor.

ICICI Bank: The scrip touched a new 52-week high of Rs403.5 on the back of a strong rally in its ADR in the New York Stock Exchange. The ADR is quoting at more than $22 or close to Rs480 per share. The bank is planning a sponsored ADR issue of $10 million which has already received FIPB approval. The bank continues to grow strongly especially in its retail business. Its subsidiaries in insurance, infotech and fund management would be strong value creators in the future and could lead to a re-rating of the stock. Its IT subsidiary 3i Infotech has filed its prospectus with SEBI for an IPO.

Bharti Televentures: The stock gained more than 5 per cent over the week. The Company has shown strong growth in the last quarter and is expanding its operation into new circles. Future growth would come from new circles as well as increased average revenue per user (ARPU) from mature circles. This would result in strong cash flows in future, though percentage growth in revenues would slow down. Increasing consumer spend on services like telecom would help Bharti.

Bajaj Auto: The Company has revived its motorcycle fortunes and is giving market leader Hero Honda a run for its money. It is coming out with great products at regular intervals. Pulsar, CT 100 and Discover are run away success stories. Future growth would depend on continued product roll outs and aggressive push into African, South American and East Asian markets for its two and three wheelers. Rahul Bajaj is stepping down from the post of managing director and his son Rajiv will take over from April 1. Rajiv is known to be a hands-on manager and is credited with the resurgence of Bajaj Auto in the motorcycles segment.

Tata Steel: The Company has posted exceptional results riding the upswing in steel prices. With ambitious capacity addition plans and entry into global markets through acquisitions, the scrip should remain an investor favorite. Acquisition of Singapore-based Natsteel is complete except for a small unit in China and this would give Tata Steel the much needed market presence in fast growing East Asian countries as well as China. Even though very large investments are being planned in the steel sector and prices are not expected to rally further, Tata Steel should be the best performer in the industry as it is the most efficient. Strong links with original equipment manufacturers in the domestic markets through long term contracts would help Tata Steel to maintain earnings stability.

SAIL: The stock touched a new 52 week high during the week on talks about a possible increase in steel prices. The company is riding the uptrend in steel prices and is well on the way to post the best ever results in its history. The company is back on the dividend list after a long gap and the efficiency of its plants are improving. However, the company has some way to go in modernization and introduction of value added products to insulate itself from a downtrend in steel prices. ABN Amro has put a buy call on SAIL with a price target of over Rs80.

SBI: The country's largest commercial bank SBI also hit a new 52 week high this week on the budget sops to the banking sector. The proposal to allow banking companies to issue preference capital would help the bank to meet capital adequacy norms under the Basel agreement. The bank has the largest network of branches in the country and is increasingly turning aggressive abroad. Banking sector is a good proxy for participating in the India growth story and the largest bank in the country is no exception. Its valuations are attractive as compared to its private sector peers and by international comparisons.

Outlook: The market may look to consolidate next week with a downward bias. With the budget over, there are no immediate triggers for the market. Liquidity flows, especially hedge fund activity, would determine market direction in the immediate short term. Also keep an eye on political developments which have taken some strange turns after the elections to 3 northern states. Longer term outlook remains positive with increasing external opportunities, domestic consumer spending and strong corporate performance.

*Disclaimer: The author doesn't have any position in the stocks specifically 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.

Other articles by Rex Mathew

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List of reports on Union Budget 2005-06

List of general reports on finance