Markets opened the week with a very strong secular rally on Monday. Infosys was the star of that day as the stock gained close to 4 per cent after its sponsored ADR offer opened. Satyam and Wipro followed the leader and posted excellent gains. FMCG and auto sectors also saw considerable buying.

Tuesday saw the indices drifting lower on profit booking. Most of the frontline stocks which had performed very well during the previous week declined as traders cut down their exposures.

The weakness continued into Wednesday as a rise in oil prices and weak US markets on the previous day kept the markets wary. Some amount of selling in IT stocks after the large drop in the ADR price of Satyam led to the indices closing weaker.

On Thursday the markets gained marginally as some amount of institutional buying kept the indices up. However, volumes remained lacklustre and the movements in the indices were very measured. Markets almost seem to have forgotten the term volatility.

Friday was yet another dull day as the markets opened weak and gradually gained through the day to close almost flat. Mid-caps were very active on Thursday and Friday with many stocks shooting up 10 to 20 per cent very easily.

US markets, economy and oil

US markets remained indecisive and lacklustre throughout the weak. They opened the week on a firm note but posted losses for most of the rest of the week. Reports of brewing trouble in the hedge fund industry started the downtrend which was further accentuated by weak revenue growth reported by Wal-Mart. Strong economic data for the month of March and April and a decline in crude prices could not cheer the markets as much as expected.

US economic data for the week was mixed. Retail sales for April grew a surprisingly high 1.4 per cent after a low 0.4 per cent reported in March. The data showed that demand for clothing, food and automobiles remained robust. However, this was tempered by lower than expected results from retail giant Wal-Mart, which said sales growth did not match forecasts. As many investors follow Wal-Mart more than official data, this slowdown was seen as the beginning of a decline in retail spending.

Weekly unemployment claims in the US increased marginally, not enough to cause any worries. The economy added a good number of jobs during the month of April which was expected for the Easter season. Wages also increased as compared to the previous month.

There was some very good news for American policy makers in the trade front as US trade deficit for March declined. The deficit for March shrank to around $55 billion from $60.6 billion reported for February. Growth in imports from China declined for the second consecutive month and US exports to China rose more than expectations. Based on this strong performance on the trade front, many economists have estimated the US economic growth for quarter ended March to be around a very respectable 3.7 per cent.

Crude futures started the week with an attempt to start a fresh up trend. This was supported by a report from the International Energy Agency which gave a stable outlook for global oil demand this year. Crude rallied and closed above $52 on Tuesday. However, the higher levels could not be maintained and the rally fizzled out soon.

The IEA came out with the demand statistics for the first quarter of the current year which showed a slow down in demand from China. Based on this data, the IEA cut its forecast for Chinese demand growth during the current year. Reports of US crude inventories touching a 6 year high led to further selling in crude futures which declined to below $49 on Thursday.

In a statement which surprised many for its optimism, a top economic advisor to the US president said the US government would like oil prices to be around $25 to a barrel. Allan Hubbard, director of the National Economic Council, however admitted that this target may take some time to achieve.

Domestic economy during the week

On the domestic front, after giving some worrying signals for the month of February, the Index of Industrial Production expanded by 7.2 per cent during March. This is much above the 5.1 per cent reported for February. Electricity and mining sectors, which reported negative growth during the previous month, have reported positive numbers though lower than the trend for most of last year.

Inflation for the week ended 30 April fell to 5.67 per cent from 5.91 per cent reported for the previous week. The fall was attributed to a decline in prices of food articles.

After the Japanese, it is the turn of the money-savvy Swiss to start investing in India. According to reports, a Geneva-based portfolio management bank is launching a $100 million India specific hedge fund. The bank has already invested in India 20 per cent of another large fund promoted by it.

Industry update

• There are reports that American and European steel producers are cutting down prices and output as demand growth is showing some slowdown. The breathtaking growth in demand for steel over the last few years which took the prices to historic highs was mainly supported by the insatiable appetite of China. The Chinese demand cannot be expected to sustain for ever as they have increased domestic production capacity over the last few years. This may not have much of an impact on Indian steel companies except for those having large export volumes as domestic demand is expected to be robust over the next couple of years.
  
• Indian steel industry is planning massive capacity additions which will start production over the next five years. All top producers without exception are planning to multiply capacities over this period. The proposal by South Korean steel major Posco to set up the single largest steel plant in the country with a capacity of 12-million tones per annum is finally nearing the agreement stage. The proposal was stuck after the state government of Orissa refused to allocate additional iron ore to Posco for exporting in raw form. The Korean company has reportedly withdrawn its demand for additional allocation. Interestingly, the largest private steel manufacturer, Tata Steel, has asked the government to ban all iron ore exports for the next 5 years.
  
• RBI came out with guidelines for mergers between private banks. Under the new regulations, banks should seek the approval of RBI for the merger before they seek High Court approval under the Companies Act. A draft merger proposal should be approved by the board of directors of both the banks and shareholders of both banks should approve the merger with at least two-third majority. The shareholding pattern after the merger should be in line with RBI regulations on bank shareholding.
  
• The Supreme Court allowed land belonging to old textile mills in Mumbai to be used for development of residential and commercial property. A total of more than 700 acres of land was lying idle after the mills stopped operations. The Mumbai High Court had earlier allowed the development, which the Supreme Court has now upheld. Many old textile companies like Bombay Dyeing, Hindoostan Spinning, Morarjee Mills, Shri Dinesh Mills, etc, have large real estate holdings in Mumbai which are now expected to be sold to property developers. The leading financial services company IndiaBulls had purchased one mill property earlier.
  
• The aviation industry has seen a lot of developments over the last few months with the entry of new carriers and liberalised aviation policies of the government. This week the government allowed air carriers from the European Union to start more services to India. This could lead to new carriers starting services as well as expansion of services by existing players. One of the largest British discount carriers, bmi, has announced additional services in the Mumbai-London sector. The 'open skies' policy with the US signed earlier has led to many US carriers like Delta and Continental starting more services to India.
  
• The organised retail industry may be in for some exciting times after the US giant Wal-Mart made known its intentions to enter the Indian market. A senior official from the US company called on the prime minister and urged the government to liberalise the FDI norms in retail sector. The FDI limit now stands at 26 per cent. In the meantime, Wal-Mart is reportedly looking for local partners for an entry into India. Reports further suggest that they have already held discussions with the Mahindra group. Wal-Mart also indicated that it is increasing its material purchases from India to $1.5 billion in the current year.
  
• The country's textile and garment exports to the US showed robust growth during the first three months of the calendar year. Though the growth is nowhere as dramatic as those reported by China, it gives enough indication that Indian companies can thrive in the post quota regime. A revaluation of the Chinese currency would only help Indian exporters. Meanwhile large global marketers of branded garments are planning to enter India through tie ups with local companies. The domestic branded garment industry is growing well over 30 per cent per annum.

Corporate moves

• After launching its passenger vehicles in some developing markets and Europe, Tata Motors is reportedly planning to launch them in South Korea. Korea is set to allow diesel powered cars from the current year and Korean manufacturers are not very strong in low end diesel cars. Tata Motors had acquired the Korean company Daewoo Commercial Vehicles some time back and the two companies participated in the Seoul Auto Show where the Tata cars were displayed. Daewoo Commercial already has a sales network in Korea.
  
• Another domestic auto company going global in a big way is two- and three-wheeler manufacturer Bajaj Auto. According to reports, the company is negotiating with its technology partner Kawasaki to pick up stakes in the Japanese company's ventures in South-east Asian markets. Kawasaki is not very keen on the lower end of the market as its strength lies in larger motorcycles. Bajaj Auto has developed very strong capabilities in designing and developing bikes of lower engine capacity.
  
• Tata Steel is planning to set up a joint venture with Australian company Bluescope Steel for manufacturing coated steel products. Bluescope is one of the largest steel manufacturers in Australia with strengths in specialty steel products.
  
• Kingfisher Airlines, promoted by the UB group, took to the skies this week with services in the Bangalore-Mumbai sector. The airline has priced its tickets mid-way between the full service carriers and low cost carriers. The company is planning to start Bangalore-Delhi service soon and expects to cover all major cities by year end. In an innovative deal, the airline has entered into an agreement under which Indian Airlines would operate the non-profitable sectors connecting smaller towns on its behalf. Kingfisher would pay over Rs120 crore every year to Indian Airlines to help it meet this obligation imposed by the government.
  
• Saksoft, which completed its IPO recently, made a spectacular opening during the week. Issued at Rs30 per share, the stock attracted very high interest from traders as it move to over Rs120 by Thursday. The stock closed the week at Rs122.
  
• Allsec, another new entrant after its recent IPO, had a disappointing first week. Issued at Rs135 per share, the stock declined below its issue price on the first day itself. After remaining weak on most days, the stock rallied close to 7 per cent to close the week at the issue price of Rs135.
  

Other articles by Rex Mathew

List of general reports on markets

List of general reports on finance