It was an action packed week for the market, which started a new financial year on Friday. The futures and options settlement on Thursday and the usual year end activities kept the market volatile. The indices managed a relief rally on Monday after the huge losses of the earlier week only to crash again on Tuesday. After stabilizing on Wednesday, the indices pulled ahead with strong gains on Thursday and Friday. Both Nifty and Sensex gained more than two percent each for the week. Mid-caps ran much ahead of the frontline stocks with the mid-cap index gaining more than five percent.

US markets lost ground on the last two days of the week after posting spectacular gains on Wednesday. The decline on Friday was also because of a sell off in financial sector stocks following reports of investigations into insurance major AIG's accounting practices. Even investment legend Warren Buffet is under a cloud because of his company's insurance deals with AIG. Tuesday was a very bad day for Asian markets and many of them ended with substantial losses. The downtrend in Japanese employment data and worries about rising global interest rates led to a sell off in most markets.

After showing signs of cooling off in the early part of the week, crude oil rose sharply on Friday to touch an all time high of $57.7 to a barrel. A highly alarmist report from Goldman Sachs, who also happens to be the largest trader in crude oil futures, predicting a sharp increase in oil prices was the main trigger. The US investment bank believes that oil is entering a super-spike period and may even touch $105 to a barrel. Last week's explosion in a US oil refinery and the temporary shut down of a major refinery in Venezuela added to worries about sufficient gasoline stocks.

India's GDP growth for the third quarter slowed down to 6.2 percent as compared to 11 percent for the same quarter last year. The slow down was expected as last year's growth was aided by a massive eighteen percent growth in agriculture, which understandably has slowed down this year. The growth for the nine-month period Apr '04-Dec '04 is estimated at 6.7 percent as against 8.6 percent for the same period last year. Going by this trend it would be difficult to achieve the 6.9 percent growth projected for the full year. To achieve this, the economy has to grow well over seven percent in the last quarter and the numbers for February were not very encouraging.

However, there are some silver linings in the form double-digit growth in the manufacturing sector and higher growth rates for the construction and service sectors. Non-oil imports are showing no signs of a decline indicating the sustained momentum in manufacturing. The construction sector also posted good growth at eight percent, which may cool down as input prices are spiraling. Among services, transport and communication posted an impressive 10.5 percent growth followed by financial services at 8.1 percent.

Inflation for the week ended 19 March fell marginally to 5.11 percent from previous week's 5.23 percent. The drop was on account of a decline in prices of some primary articles even as manufactured products and metals continue to see higher prices. The March year-end inflation may remain at around the target of five percent as oil price hikes have been postponed and major increases in metal prices were effected from 1 April. Expect a sharp up turn in inflation during the month of April.

The nation heralded the most significant tax reform in its history by introducing VAT from 1 April. Twenty-one states and union territories are implementing the new tax regime even as traders all over the country are protesting against it. The introduction of VAT may see disruptions for corporate India during the quarter Apr '05-June '05. Many companies will see a decline in sales growth as traders cut down stock levels. Successful implementation of VAT is of vital importance to improve the competitiveness of Indian industry and trade.

Corporate Results

• Heavy equipment major BHEL announced results for the year ended Dec '04. The company has reported sales of over Rs10,000 crore and net profit of over Rs1,000 crore for the first time in its history. Profit growth, year on year, is over fifty percent while sales growth is twenty percent. The company has really benefited from the pickup in industrial investment and has an order book of Rs31,800 crore.
  
• MNC drug company Aventis reported a 49 percent increase in profits for the year ended Dec '04 as compared to the previous year on sales growth of 14 percent. The results are impressive when its competitors are struggling to maintain their margins. Even though the net figure has received a boost from an increase in other income, Aventis has actually improved its operating margins.
  
• Pharma company Pfizer announced lackluster results for the quarter Dec '04-Feb '05. Profits improved 30 percent even as sales declined marginally. The numbers are consolidated after the integration of Pharmacia into Pfizer. The company claims sales have been hit by uncertainty over implementation of VAT and the Mar '05-May '05 quarter would be a difficult one.
  
• Bata India continues to bleed even after so many attempts to turn it around. The net loss for the year ended Dec '04 has more than doubled to Rs62 crore even as sales remained almost flat at under Rs700 crore. The company is struggling under high employee costs and marketing is far from aggressive. The only significant value in the company seems to be its large real estate holdings in Kolkata. The company is planning a rights issue in the near future.
  
• IT training company Aptech reported losses of Rs61 crore on sales of just under Rs100 crore for the year ended Dec '04. The losses were on account of a onetime write off of assets (Rs40 crore) and provision for bad advances (Rs40 crore). The company has recently become the largest IT education provider in China.

Corporate moves

• The largest domestic aluminium and copper player Hindalco will invest over Rs7,800 crore to set up a new aluminium plant in the state of Jharkhand. The project will also include a power-generating unit mostly for captive use.
  
• HPCL may pickup a stake in the refinery project of Saudi oil company Aramco in that country. Aramco will take a stake in the Vizag refinery being planned by HPCL.
  
• GAIL will have to pay higher prices for natural gas from domestic fields as the government has decided to increase prices from $3.11 to $3.86 per MMBtu. Other buyers will pay a higher price of $4.08 per MMBtu. ONGC and Reliance will benefit from the price hike as they hold a combined 70 percent stake in the gas fields. British Gas holds the rest.
  
• Tata Power will take a 74 percent stake in its 1000 MW joint venture hydropower project with Damodar Valley Corporation.
  
• ITC will invest up to Rs14,500 crore to expand its cigarette and paper manufacturing facilities as well as on new hotel properties.
  
• Indian Hotels, part of the Tata group, is in negotiations to acquire a hotel in New York.
  
• Hero Honda has closed the year 2004-05 with a volume growth of 26 percent. The company's growth slowed down considerably in the last quarter. On the other hand, Bajaj Auto reported a dramatic pickup in volume growth in the last quarter as the company's new models have caught consumer fancy. However, growth in Bajaj's scooters and three wheelers divisions is slowing down. Hero Honda has withdrawn all price discounts and Bajaj has announced a small increase in prices.
  
• Ford Motor Company of the US sold its stake in Mahindra & Mahindra and the Indian company has in turn sold its stake in Ford's local subsidiary. The funds realized by M&M is expected to fund its JV with Renault though the amount is still not known.
  
• Power equipment manufacturer Alstom Projects has bagged a contract worth Rs1,500 crore from the National Hydro Electric Power Corporation for setting up a hydro-electric power station. The project will be implemented in association with its French parent and Alstom Projects will handle half of it.
  
• Ucal Fuel Systems is buying a US based auto component manufacturer for $28 million.
  
• Opto circuits will raise $25 million from a GDR issue to fund an acquisition in the US and product research.
  
• Bhushan Steel is planning a rights issue as well as a GDR issue to raise funds totaling over Rs650 crore.
  
• Crompton Greaves received an order worth $20 million from NTPC for supply of transformers.
  
• Ind-Swift Laboratories is planning to raise $20-25 million to fund its expansion plans.
  
• Pantaloon Retail will set up two subsidiary companies to enter the foods and restaurant businesses.
  
• Construction company IVRCL received orders worth more than Rs500 crore from the government of Andhra Pradesh.

Outlook: A weak opening on Monday is the most probable after the sell off in US equities and the sharp rise in oil prices on Friday. The possibility of a major decline is limited, as operators would look to increase exposures ahead of earnings season. A rebound in US markets and any decline in oil prices would give strength to this up move.

Other articles by Rex Mathew

List of general reports on markets

List of general reports on finance