The markets opened the week on a strong note with the sensex well set on its course to the peak of 8000. After reaching very close to the mark, as close as 20 points, the Sensex gave up in late trades on Monday. The indices however managed to close the day with gains on new lifetime closing highs.

Markets consolidated on Tuesday, gathering momentum, as the government finally decided to bite the bullet and increased retail fuel prices. The market reaction was muted, as the increase in prices was much lower than required by the oil companies to cover their losses.

After Wednesday's holiday, the sensex wasted not much time on Thursday and crossed the 8000 mark in morning trades itself. Strong buying in large caps like Infosys, Reliance and ONGC helped the frontline indices to stage a smart rally and both Sensex and Nifty closed the day with gains of well over a per cent each.

The indices consolidated on Friday as the markets settled down at the peak levels. Good buying in banking stocks covered up for profit booking in other stocks and helped the indices to maintain levels.

The sensex gained 160 points or 2 per cent during the week and the Nifty added 39 points or well over one and a half per cent over the week.

Mid-caps were rather subdued during the week, though the index managed to close with gains for the week. The weekly gains on the CNX Mid-Cap 100 index were lower than the frontline indices. The index added 49 points or well over a per cent during the week.

Domestic economic and regulatory action

• The reaction from the government and regulatory bodies to the news of sensex crossing 8,000 was muted. After the recent controversy following a SEBI member predicting 16,000 levels for the sensex within a year, the words were chosen very carefully. The finance minister said the earnings multiples of the sensex and Nifty were not very expensive and there is no reason to worry about a bubble in the making.
• SEBI has finally voiced its concern about the runaway rise in prices of certain small stocks in this bull rally. The regulator said it has observed abnormal movements in some stocks indicative of price manipulation. SEBI stated further that it has advised the exchanges to move these stocks to trade-to-trade segment and impose 100 per cent margins on them.

  Going by the number of small and penny stocks appreciating rapidly, mostly at the BSE, SEBI's actions have been highly ineffective so far. Speculators continue to manipulate penny stocks with impunity. On Thursday, when the sensex crossed 8,000, as many as 190 stocks hit the upper price circuit on the BSE. Most of these stocks were of virtually unknown companies.

  Merely shifting some of these stocks to trade-to-trade wont stop price manipulation. As on today, there are over a 100 stocks included in the trade-to-trade category on the NSE. The exchanges have been shifting stocks to trade-to-trade on a regular basis for the last few years and price manipulation has only increased.

  It is disappointing, to say the least, that SEBI has not so far initiated any detailed investigation into the abnormal price increases in penny stocks. All this while, SEBI has been chasing imagined culprits of the May 2004 crash when local operators are indulging in unhealthy practices right under its nose. At least for the sake of building some fear about the regulator, an investigation should be initiated by SEBI.
• The Securities Appellate Tribunal (SAT) has set aside the SEBI order against UBS Securities. SEBI had suspended UBS from participating in Indian stock markets for its alleged role in the May 2004 crash following the change of government at the centre. This has come as a further embarrassment for SEBI, which had put all out efforts to pin down the responsibility for the crash. Most of its orders in the past have been over-turned by the SAT, which reflects poorly on the rigour of SEBI's investigation.
• Meanwhile, SEBI continues to be silent on sharp increases in the share prices of some major companies ahead of major announcements. Over the last six months, there have been many such instances involving companies belonging to well known corporate houses. These are the areas where the market regulator should initiate action in a proactive manner to keep the stock markets healthy. The markets can ill afford another major scandal followed by a crash, which would destroy the confidence of retail investors.
• CMIE said it expects the first quarter GDP to be 7.1 per cent as against 7.6 per cent reported during the same quarter of previous year. The economic think tank expects agriculture to report a 1.5 per cent growth during the April-June quarter as against a 3.8 per cent growth reported during the previous year. The poor output by the agriculture sector would be offset by the manufacturing sector, which is expected to post a 9.5 per cent growth during the quarter.
• Wholesale price inflation for the week ended 27 August declined to 3.01 per cent from 3.08 per cent for the previous week. Most analysts had predicted inflation to be below 3 per cent for the week.

Industry update

• Subscriber additions by the mobile telephone companies show no sign of deceleration. Over 2.7 million mobile subscribers were added during the month of August to take the total subscriber base to over 63 million. GSM operators accounted for marginally over two million additions while CDMA players added close to 0.7 million new subscribers. Total additions during the month of July were close to 2.5 million.

  Among the GSM players, Bharti continued to maintain its top spot by adding over 6 lakh new subscribers during the month. Subscribe base of Bharti has crossed the 13 million mark and the company has a market share of over 27 per cent. PSU telecom major BSNL was second to Bharti, adding close to six lakh subscribers to take its subscriber base to over 11 million. Hutchison Essar followed in third place with 4.5 laks new subscribers and total base of over nine million.

  The CDMA segment continues to be dominated by Reliance Infocomm by a wide margin. Reliance added close to five lakh new subscribers to take its total subscriber base to over 11 million. Tata Teleservices is at a distant second with over two million subscribers.

• Idea Cellular and Aircel, two of the larger players in the GSM segment, are believed to be close to finalising their IPO plans. These companies had announced IPO plans much earlier but they never materialised because of various reasons. The promoters of both the companies have been in talks with large overseas telecom companies for stake sales. While the Idea IPO is expected to raise around Rs2,000 crore, Aircel is planning to raise Rs600 crore.

  Idea is the fourth largest GSM operator with a total subscriber base of over five million. The Aditya Birla group and the Tata group now equally own idea after the exit of Telecom Malaysia and Singapore Technologies Telemedia. Aircel has a total subscriber base of over two million and is owned by the Sterling group. Idea was interested in acquiring Aircel till recently. Aircel's promoter group also had discussions with Hutchison Essar and Russian telecom company Sistema.

• Many analysts had predicted that most of the additional steel capacities being announced would not be set up. However, going by the speed at which at least the major players are moving ahead with their plans, a major portion of the proposed additional capacities seems well on their way to the implementation stage.

  At the forefront is Tata Steel, which has finally decided to do away with its reputation for slow and steady progress. The company has announced this week that it would invest a massive Rs one lakh crore over the next few years to increase capacity by another 23 million tonnes within the country. The company also has significant plans for overseas expansion as well. Tata Steel has already finalised agreements with the state governments of Jharkhand and Orissa for new plants.

  South Korean major Posco has set up an Indian subsidiary to enable the implementation of its proposed 12 million tonne per annum plant in Orissa. The company has reportedly started negotiations with engineering firms and equipment suppliers for setting up the plant.

  Not to be outdone, the world's largest steel company Mittal Steel is also pursuing its proposed 10 million tonnes per annum plant at Jharkhand. Though the company is raising some demands regarding export of ore from the captive mines, these are expected to be sorted out in the near future.

US markets, economy and oil

• US markets continued on their path of recovery during the first part of the current week. The decline in oil prices helped the frontline indices as they surged well over a per cent each on Tuesday and maintained the trend on Wednesday as well. Expectations that the US Fed would stop hiking short term interest rates to help the economy recover from the hurricane damages also supported the indices.

  However, these expectations receded by Thursday as some of the influential Fed officials maintained that the best policy would be to continue raising the interest rates to keep inflation down. Weak outlook from a couple of companies dependent on consumer spending turned the sentiment further negative and the markets closed with losses on Thursday.

• Crude oil futures declined during the first three days of the week and went below the $64 per barrel mark on Wednesday before recovering. Emergency supplies to the US by the IEA and release of crude from the US strategic reserves forced traders to sell the commodity.

  Crude futures for October delivery stabilised and made a marginal recovery on Thursday. After going past $65 in early trades on Thursday, it closed at $54.49 to a barrel on the NYMEX. Crude has rallied above the $65 mark in European trades on Friday.
  

*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

List of general reports on markets

List of general reports on finance