The markets opened the week on a firm note and the indices gained over a per cent each on Monday. Auto and IT sector stocks met with all round buying and helped the up trend.

Tuesday was the anniversary of the worst ever crash in the history of Indian stock markets, which occurred after last year's general elections. The markets remembered the day by giving up most of the gains made on Monday.

On Wednesday, the markets turned volatile and saw major intra-day swings. SEBI action against some foreign brokerages for the crash of last year kept the market nervous through out the day.

Thursday the markets opened with gains of over a per cent on the back of the strong rally in the US markets and declining oil prices. The gains could not be held however, and the indices lost much of the gains by the day's close.

On Friday, the indices moved in a small range as results were declared by a few public sector banks. After moving in and out of losses, the indices finally managed to close the day with marginal gains.

US markets, economy and oil

US markets had a fantastic week as the broad indices gained on 4 out of 5 trading sessions. The tech heavy NASDAQ managed to close with gains on all 5 days. This is the best weekly performance by the US markets in the last 6 months. Investors were assured by the increasingly tough stance taken by the US government to protect domestic industry from the Chinese onslaught. Continuing growth in the US economy and declining crude prices helped to improve the sentiment further.

US consumer price index remained flat during April after showing a surge in March. This helped allay fears of a slowdown in consumer spending because of higher prices. Some analysts are also hopeful that a benign price scenario would keep interest rates lower as the US Fed can be expected to keep its policy of moderate increases in short term interest rate.

The coming week would see the release of US GDP numbers for the first quarter as well as data on durable goods orders for the month of April. Final GDP growth is expected to be higher than the 3.1 per cent as per preliminary estimates.

The US Fed is of opinion that the real estate boom is showing some signs of becoming a bubble. Data indicates that more than 20 per cent of all buyers are investors who buy property for financial gains. This may force the Fed to take some monetary steps to cool the market. A decline in real estate demand could affect the economic growth as it would slow down the construction sector. However, the Fed has indicated that the problem is limited to certain areas and the chances of a nation -wide decline in real estate prices are low.

Crude prices were under pressure throughout the week. Opening at around $49 to a barrel the commodity declined to under $47 by Thursday. Some amount of buying interest one Friday helped the NYMEX futures for June delivery to close marginally above $47. This is the first time crude has fallen below the $47 mark since February.

US crude inventories continue to climb higher thereby easing concerns of a supply shock. OPEC indicated that it will keep oil production at the current record highs even if it means a further cooling of crude prices.

Domestic economic and regulatory action

Inflation for the week ended 07 May fell to 5.61 per cent from 5.67 per cent reported for the previous week. The fall was attributed to a decline in prices of manufactured products and food articles. The price index would come under pressure once the fuel prices are increased.

SEBI took action against European brokerage UBS Securities for non-cooperation in its investigation into the Black Monday crash of last year. It accused UBS of holding back information about its clients who resorted to heavy selling on that day and stopped it from issuing overseas derivatives, like participatory notes, for the next one year. Investigation is going on in the case of certain other firms.

In what could affect the rush by Indian companies to raise debt from abroad, the RBI has banned MIFOR instruments. MIFOR is a forward contract which allows a domestic borrower to hedge the currency risk on his overseas borrowings in foreign currency. The status of the existing MIFOR instruments is not clear. Without MIFOR, domestic companies would be exposed to exchange rate fluctuations and hence may not prefer to borrow from abroad even of the interest rates are lower.

Finally the Bombay Stock Exchange is becoming a corporate entity. The memberships of existing brokers would be converted into trading rights which will not be transferable. At least 51 per cent of the shares of the new company would be offered to the public and listed for trading in a few months. This move would bring much needed transparency to the management of India's oldest stock exchange.

Industry update

• The much awaited fuel price hike finally seems to be round the corner with the ministry of petroleum recommending the price rise to the cabinet. The decision by the cabinet is expected shortly. There are indications that the cabinet may approve only a lower increase than recommended. The left parties, who have been opposing a price hike, appear to have finally accepted the decision. However, the left parties have submitted a proposal to force the private sector refiners to also share the subsidy burden. Oil marketing companies have been asking for a price hike for the past few months after crude prices rose to record highs.
  
• Export data for the Jan-March quarter indicates that Indian textile exporters are struggling in the post quota regime which came in to effect on 1 January 2005. Exports of garments have actually declined as compared to the same quarter of the previous year. This is in sharp contrast to the surging exports from China. India was supposed to be the second most significant beneficiary from the abolition of multi-fibre agreement after China. Textile trade bodies blame the drop in international prices and the appreciation of the rupee for the poor performance. International prices of garments had dropped after China started flooding the market in the last quarter.
  
• Indian garment exporters may get some respite after the US government decided to impose quotas on some garments imported from China. European Union is also studying the impact of increased Chinese imports and may take a similar action. Governments of western countries are under pressure from their domestic textile industry to act against Chinese imports. China on its part has imposed an export duty on garments, the impact of which on prices would only be marginal. The possible revaluation of the Chinese currency may benefit exporters from other countries better.
  
• India has emerged as the fastest growing textile market in the world with an annual growth rate of around 8 per cent. The domestic market size is currently estimated at around $25 billion which is a tenth of the US market size. Many foreign players are reportedly planning to enter the branded garments business in the country. The domestic players are also planning expansion of their retail chains.
  
• Telecom sector may some acquisitions in the near future. Smaller mobile telecom companies are being evaluated by potential buyers, both domestic and overseas. There are reports that Vodafone, the largest mobile telecom operator globally, is evaluating BPL Mobile. Japanese mobile company NTT DoCoMo is also interested in BPL Mobile. Essar group, which owns a stake in the country's second largest GSM operator Hutch, is reportedly trying to buy out the foreign investors in Spice Telecom promoted by BK Modi. Modi has approached the courts to thwart the Essar move. Aircel Cellular, promoted by C Sivasankaran of Sterling group, is also up for sale. Meanwhile, Singapore Telecom has increased its stake in Bharti Televentures to over 30 per cent and indicated that it is open to increase its holdings if the conditions are right.
  
• Meanwhile, GSM mobile operators are unhappy with the latest recommendations from TRAI to the government on spectrum allocation. Spectrum is the radio frequency range allotted to mobile telecom operators and is a limited resource. TRAI has recommended that CDMA operators be allotted the 800 MHz band immediately while additional allocations in the 2GHz band for both GSM and CDMA operators would have to wait till 2007 when the armed forces vacate the band. GSM operators allege that the 800 MHz band would enable CDMA players to offer next generation mobile services while GSM players will have to wait till they get the 2 GHz band. Next generation services, called 3G under GSM and EVDO under CDMA respectively, would offer broadband internet connectivity, streaming video etc on mobile phones.
  
• The hotel industry is lining up large scale investment plans to add capacity. The Leela group is planning an investment of over Rs500 crore to set up 3 premium hotels in the country. Lalit Suri promoted Bharat Hotels, which manages the Grand chain of hotels, is lining up investments of over Rs1,000 crore over the next few years. ITC Hotels has also announced plans to set up new hotels at a total investment of over Rs2,000 crore. The Taj group seems to be concentrating on establishing its footprint abroad. The company has recently signed contracts for managing resorts in Malaysia and Middle East. The Taj group is also planning to re-enter New York by taking over the management of a luxury hotel and plans to invest $35 million for renovating the property. Many foreign hotel chains have also announced ambitious expansion plans in India.
  
• The domestic aviation sector seems to be bracing up for a price war after the entry of the latest low cost player SpiceJet. As an inaugural offer, the airline started selling tickets at rock bottom prices. The prices are comparable to upper class train tickets and attracted over 37,000 bookings on the first day itself. For instance, a Bangalore-New Delhi one way ticket is available at around Rs2,700 including taxes, if booked a month in advance. This is lower than the fares offered by the other low cost operator Air Deccan. Kingfisher Airlines, which started operations in the previous week, immediately slashed its prices though they are still above the SpiceJet rates. It is only a matter of time before full service carriers like Jet and Sahara are drawn into this price war.

Corporate moves

• Reliance Industries has finally firmed up its plans to enter the retail business. The company is planning to set up massive retail stores spread over more than 100 acres each in large cities. The company is planning to spend upwards of Rs30 crore for setting up each of these stores. According to reports, the company has already identified 18 cities for setting up these malls and would invest bigger amounts in larger cities. The company has already started retailing vegetables through its chain of fuel stations.
  
• Reliance is also planning to increase the capacity of its petroleum refinery to 60 million tonnes per annum over the next few years. This would make the company the single largest refiner in the country ahead of Indian Oil. The company is also expanding its retail fuel outlets to ensure a sales channel before the refinery capacity increase.
  
• ICICI Bank acquired a small bank in Russia. The acquired bank, with assets of around $4 million, is too small to make any impact on ICICI's performance in the short term. The move is seen more as a strategic one as it will take up to 2 years to get a new banking license in Russia. ICICI Bank is hopeful of targeting the corporate lending market in Russia and may also look at retail lending, which is its strong area.
  
• Retail stock broking company, India Infoline, made its entrance on the stock exchanges today after its recent IPO. The stock, issued at Rs76 per share, closed the week at Rs83 on the NSE.
  

Other articles by Rex Mathew

List of general reports on markets

List of general reports on finance