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Weekend Blues

Despite making an appearance on Monday and Tuesday, the bulls were thrashed during the last three trading sessions. A choppy market is what we have to live with

In retrospect, one can say that the bulls lacked conviction. Despite a good Monday and Tuesday, the sentiment was low. And rightly so. This week had its share of bad news.

Political tension between the government and the Left parties over the Indo-U.S. nuclear deal was not received well by the market.

The price of crude is adding to India's fiscal woes and inflationary pressures. Interestingly, international oil prices cooled slightly this week after China announced a hike in fuel prices.

But inflation is getting worse in India. After dithering for several weeks, the Centre had finally hiked fuel prices on June 4. It also slashed duties on crude and petro products to partly cushion the economy from higher fuel prices. Ever since then, there has been speculation that inflation would go higher. On Friday, the Wholesale Price Index (WPI) rose to 11.05% for the week ended June 7, 2008. The figures caught the market by surprise and interest rate sensitive sectors like banking, automobiles and realty were punished. All BSE indices were battered. The Sensex closed at 14,571.29.

Amitabh Chakraborty, President, Equity, Religare Securities Ltd, put it down to panic selling as the market tried to anticipate further monetary and fiscal measures from the government and RBI. "The inflation figure which includes the impact of the oil price hike was a complete surprise against our expected 10.25%. The market was expecting between 9.7% and 9.9%," he said.

Nirmal Jain, Chairman, India Infoline Ltd, is of the option that "Headline WPI will likely remain high for the next 4-5 months and a policy rate hike is round the corner." Though he feels that expectations of a slower growth, widening current account deficit, and a deceleration in savings growth is largely priced in, the wild card is oil prices. "If oil prices come off even to US$100/bbl levels, then much of the macro fears will at least temporarily dissipate," he says.

After the last three trading sessions which saw the bears come out in full swing, no one is really hopeful about Monday. In the near future, one can expect the market to remain largely range-bound and choppy.