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A Climax Worth The Wait

The Sensex surprisingly ended the week up by nearly 3% despite rate hikes and soaring inflation

Friday’s pullback was nothing short of a surprise, as rate hike, inflation and weak results marred the week.

The markets saw a phenomenal recovery on the last trading session on Friday, as the index saw an intraday swing of almost 700 points. On the back of weak global cues, the BSE Sensex opened weakly at 14,064, touched an intraday high of 14,682, low of 14,032 and closed the day at 14,656 on brisk buying seen in power and capital goods stocks. The CNX Nifty opened at 4331.60, touched a low of 4235 and high of 4,422 and ended the day at 4413. The BSE Sensex was up 300 points (2.10 per cent) and the CNX Nifty up 80 points (1.86 per cent).

On the weekly basis, the Sensex gained 2.8 per cent while the Nifty up by 2.5 per cent. Amongst the BSE heavyweights, Suzlon rose by 13 per cent, Tata Power by 10 per cent and HDFC by 8.5 per cent, while Reliance Communication lost 13 per cent, after reporting the slowest profit increase in nine quarters. Inflation as measured by the Wholesale Price Index rose by 11.98 percent in the week, after having gained 11.89 per cent in the previous week, the fastest pace since 1995.

To rein in inflation, the Reserve Bank of India raised repo rates by 50 bps and CRR by 25 bps (9 per cent each), in its monetary policy review announced on July 29. The hike in repo rate to 9 per cent is for the first time since October 2000 and CRR at 9 per cent for the first time since November 1999. Besides this, the central bank also raised its year-end inflation forecast to 7.0 per cent from 5.5 per cent and lowered its growth estimate for the year ending March 2009 to 8.0 per cent from an earlier prediction of 8.5 percent. Banks reacted negatively to these developments and the BSE Bankex index consequently fell by 8.3 per cent, followed by BSE Realty, which was down by 5.54 per cent on the very same day the policy was announced.

For the week ended on August 1, the BSE Midcap was up 1.26 per cent and BSE Small-cap Index was up 3 per cent. Among the sectoral indices, the Metal Index was up by 6.06 per cent - Tata Steel up 10.5 per cent, Sterlite up 4.5 per cent and SAIL up 4 per cent. The BSE Oil & Gas Index was up 5.7 per cent with Reliance Industries up 7 per cent and GAIL up 7.5 per cent. However, BSE Bankex and BSE FMCG were down by 0.34 per cent and 0.12 per cent respectively.

During the week, FIIs sold equities worth Rs 1,281 crore and mutual funds purchased equities to the tune of Rs 832 crore. Crude oil for the September delivery rose by $1.02 or 0.8 per cent on last trading session to settle at $125.10 a barrel on the New York Mercantile Exchange. And as far as gold is concerned, for the December delivery, the yellow metal fell by $5.20 on Friday to close at $917.50 an ounce on the New York Mercantile Exchange, finishing 2.1 per cent below the week-ago closing level.

Going ahead, there aren’t many upside triggers that can help the markets scroll up. Results of almost all companies are in and the performance has disappointed. Inflation shows no sign of easing off, though the Indo-US nuclear deal is on the fast track, as the International Atomic Energy Agency (IAEA) approved an inspection plan for India. India will now have to seek permission from the Nuclear Supplier Group (NSG). Hence, only a positive gesture by the government in the form of a ‘reform’ can lift the sentiment of the markets.