After the strong momentum that prevailed during the first two weeks of the month, Sensex was expected to scale the peak of 7,000 this week. Such hopes were soon laid to rest as FII's turned net sellers for the first time since end January. Weakness in world markets added to the negative sentiment and the first four days of the week saw the indices closing with losses. The last day of the week saw a relief rally coming towards close of trading which helped the indices to end higher. Both Sensex and Nifty lost more than 2 per cent each during the week.

World markets also remained week through the week as the prospect of inflation fuelled by high oil prices continues to worry investors. US unemployment data was better than expected but failed to lift the spirits of market men. The widening US trade deficit and downward revision of earnings estimates by large companies like General Motors also affected the sentiment. Asian markets led by Japan staged a smart bounce back on Friday as oil and property stocks rallied.

Crude oil made history during the week by posting an all time high. The NYMEX light sweet crude for April delivery touched $57.6 to a barrel before cooling off to settle at $56.72 on Friday. Even the decision by OPEC to increase output by 500,000 barrels had little effect on the market. OPEC is increasingly losing its ability to control oil prices as many of its members violate their production quotas at will. The official decision to raise output would only regularize the unofficial production by member countries and may not put much additional oil in the market.

While accepting that high oil demand from countries like China and India is the fundamental factor driving up oil prices, there are many who believe that at least 20 per cent of the current rise is due to excessive speculation. They point out that there are no major supply worries and enough oil is available to those who are willing to buy. This was not the situation during the previous oil rallies when supply was restricted because of wars and other disturbances. Even as winter comes to an end in the Northern hemisphere, which should normally lower demand for oil, prices continue to run up. The high volatility in oil prices in recent rallies point to greater participation by hedge funds and other speculators. Prices had shot up last August to $56 per barrel before crashing to around $40. It started going up again this year and is back above $56. Such volatility is not warranted by underlying fundamentals but by somewhat exaggerated worries about minor disturbances and supply concerns from the Middle East, Russia and West Africa.

Inflation for week ended 5 March rose to 5.3 per cent as compared to 4.95 per cent for the previous week. The increase was mainly on account of increase in prices of manufactured goods. The rate of inflation may shoot up in the coming weeks as a major upward revision of fuel prices is inevitable if crude remains at these levels. The price of Indian basket of crude oil has crossed the $50-mark for the first time ever and is hovering around $51. Oil companies are demanding a price increase of 5 to 10 per cent. Metal prices are also on the rise with copper, zinc and aluminium close to historic highs and many steel companies indicating a price hike in early April.

Could high oil prices and the resulting inflation pressure affect our growth rates? Not much, as Indian economy has attained a certain momentum and may be in a position to take higher fuel prices in its stride if they stay at these levels. If the coming monsoon is benevolent enough and helps agriculture to post at least reasonable growth, the sentiment would remain positive. The bigger worry is that rising inflation may force RBI to raise interest rates more than what is expected now, thereby dampening the credit growth being witnessed.

India's imports for the first 11 months of the current year have grown at a steady pace widening the trade deficit. While oil remains the major reason for the upsurge in imports, non-oil imports have also picked up because of the manufacturing revival. Exports for the month of February remained at the January level of $6.7 billion while imports declined marginally to $9.3 billion from $9.5 billion. The trade deficit for February at $2.6 billion is around four times higher than the deficit for the same month last year. However, overall external account remains comfortable on the back of robust service exports and capital inflows.

Corporate moves

• Tata Motors signed a deal to buy 21 per cent of Spanish bus building company Hispano Carrocera, with an option to buy the balance 79 per cent anytime in the next 5 years. Carrocera is a loss making company with assembling units in Spain and Casablanca, Morocco. Tata Motors plans to revive the company by introducing new bus models on platforms built by its Korean subsidiary Daewoo Commercial. The company also plans to introduce buses built with Spanish technology in the domestic market. The company also launched its small car Indica in South Africa and expects to sell 10,000 units per year.
  
• ICICI Bank completed its sponsored ADR issue in the US. The issue, priced at $21.11 to an ADR, was subscribed over four times and received good response from investors.
  
• UTI Bank completed its GDR issue in Europe. The bank raised $239 million even as bids were received for more than $1 billion. The GDR was priced at the prevailing domestic price and will be listed on the London stock exchange.
  
• Shares of Jet Airways were listed on the exchanges this week after its successful IPO. The shares, issued at Rs1,100, saw a strong rally on the day of its listing before cooling off.
  
• European cement major Holcim received SEBI permission for the open offer for ACC. The offer is expected to go smoothly as domestic institutions have decided to sell their stake in ACC.
  
• Pharma companies announced a spate of overseas tie ups during the week. Dr. Reddy's has tied up with an Australian company to develop anti-bacterial drugs. Glenmark Pharma acquired a drug brand in Brazil for around $4 million. Orchid Pharmaceuticals announced its tie up with a US-based generics player to develop generic versions of drugs going off patent from 2007 onwards.
  
• Construction companies continued to announce big order wins. Madhucon Projects, which received orders reportedly worth Rs900 crore from the Andhra Pradesh government, led the news flow. Other companies which announced an increase in order book include MSK Projects and Nagarjuna Constructions
  
• Mphasis BFL acquired a US-based healthcare BPO company for $16.5 million
  
• Sri Adhikari Brothers sold the SAB TV brand and part of its programme library to Sony for $13 million.
  
• Shipping Corporation of India announced plans to acquire 18 new ships for a total cost of $1.8 billion over the next few years.
  
• UB Group acquired 49 per cent of Herbertsons for Rs131 crore. The group is also said to be very close to acquiring the liquor business of Shaw Wallace.
  
• Aban Lloyd Chiles announced its plans to raise funds up to $100 million through an overseas issue.

Outlook: The correction in the market came sooner and lasted longer than expected as the indices saw losses for 4 days this week. The market may remain weak for the rest of the month as oil prices do not show any signs of cooling and global markets would remain weak as a result. FII inflows may not be strong as they have been net buyers throughout February and first half of March. With Easter holidays and quarter ending coming up, FII activity may be on the lower side.

List of general reports on markets

List of general reports on finance