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Bonds Germinate This Week

Auto funds ended the week with a bang, but bond funds stole the show on RBI's softer stance

The past week at the bourses saw the reinforcement of the 'feel good factor' as the bulls tried to get a toehold in the current precarious and perturbed market situation. For the second consecutive week, the markets continued to defy gravity and logic and go ahead in its upward climb. The Sensex gained 2.77 per cent while Nifty gained 2.28 per cent in the week ending May 2, 2008. The markets managed this despite the worsening inflation scenario (the wholesale price index crossed 7.5 per cent) and ended the week at 17,800 for the Sensex and 5,228 for Nifty.

As far as the funds are concerned, the auto funds category gained the most. The category average went up by 4.34 per cent, slightly more than the BSE Auto Index gain of 4.06 per cent. On the other hand, the Gold ETF category was the worst performer with negative returns of 2.17 per cent.

For the one-month period, the banking category looked good with an average return of 14.09 per cent, while the Gold ETF category languished at the bottom with negative returns of 2.84 per cent. The banking category also leads in the one-year returns with 45.11 per cent.

Coming back to the week's performance, technology funds followed the auto category's average with a return of 3.95 per cent. The equity diversified category gave 2.39 per cent for the week ending May 02, 2008.

The category that deserves a special mention is the debt fund category which had a field day the past week. The bond markets were expecting a rate hike, but thanks to RBI's softer stance in its annual policy statement announced on April 29, the hike didn't come (CRR was hiked by 25 basis points). And obviously, the move was received well by the bond markets. The debt medium category gained 0.50 per cent (50 basis points) over the week and Gilt medium & long-term gained 0.52 per cent.

DBS Chola Triple Ace and HDFC Income gave 1.89 per cent and 1.27 per cent in the debt medium term category and HDFC Gilt Long-term and Reliance Gilt Long-term returned 2.33 per cent and 1.88 per cent in the Gilt: Medium and long-term category for the week ended May 02, 2008.

The benchmark indices have recouped almost 19 per cent from the low of 14,800. And now, that the earnings season has come to an end, how things pan out on the inflation front and how the US economy reacts in the near future, will determine the future course of the Indian markets.