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The Bulls Reign

After a long while, the bulls called the shots. Fall in crude and the Fed leaving U.S. rates untouched were the global factors that affected sentiment

Factors affecting sentiment

There were a lot of factors affecting sentiment this week.

The recent correction in crude oil is the notable positive for the global markets.

The U.S. Federal Reserve left its key fed funds rate unchanged at 2%. The Fed said "economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports," and that it expects "moderate economic growth" over time. But on Thursday, U.S. stocks slumped as investors considered reports showing higher borrowing costs, weaker spending, rising jobless claims and more bad news on the financial sector.

Back home, the Supreme Court on Friday allowed Asian steel maker Posco to built the plant and buy iron ore from the market. The plant was to be set up in Orissa and work was to start in April 2007. Sterlite Industries, the country’s largest zinc and copper producer won approval for its unit to mine bauxite in Orissa.

SEBI and RBI issued final guidelines for launching exchange traded currency futures. Stock exchanges can now start currency futures after obtaining approval from both the regulators. Banks need to have a minimum net worth of Rs5bn to trade in currency derivatives, according to new directives issued. The size of each contract will be $1,000 and the contract will be quoted and settled in Indian rupees. The settlement price shall be the RBIs reference rate on the last trading day. The maturity of the contracts shall not exceed 12 months.

Inflation and interest rates continue to be a concern.

The Indian stock market

Despite the market ending in negative terrain on Monday, mid- and small-cap shares posted big gains. The Sensex gyrated over 200 points and Nifty swung over 70 points between their respective high and lows. Selling pressure was witnessed in the capital goods, power and oil & gas stocks. On the other hand, metals, pharma and realty stocks bucked the negative trend.

On Tuesday, the bulls regained their hold over the market reversing Monday’s losses. The market started off on a flat note but gained momentum as the day progressed. Buying activity further intensified following a sharp slide in crude oil prices to $118/barrel. The rally was led by interest rate sensitive stocks like banking. Even realty and auto stocks witnessed buying interest.

On Wednesday, the bulls continued to rule. The rally was triggered after U.S. Federal Reserve decided to keep its key interest rates untouched. Sentiments were further improved as even the crude oil slipped for third day in a row. However, a bout of selling pressure in the last hour of the trading session dragged the Indian bourses from day’s high. Finally, the Sensex closed above 15K and the Nifty above 4,500. Sugar stocks attracted heavy demand after sugar prices hit a 52-week high.

Despite all the choppiness on Thursday, the market ended with modest gains and the trend continued on Friday.