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Change of Fortune

It was the bears, not the bulls, who were out celebrating Independence Day

Last week Abhinav Bindra did India proud at the Olympics and earned our country its first ever gold medal. But the bulls celebrating on Monday were not too concerned with that. They were more excited about the price of crude falling from its high and a good monsoon which should help agricultural production and combat food inflation. It was not only the Sensex and Nifty that did well, even mid- and small-cap stocks were in demand. Realty stock surged with Indiabulls Real Estate, Hindustan Construction and Nagarjuna Construction posting great gains. Share of Spicejet also surged after the announcement of a massive amount of cash infusion.

Unfortunately, the euphoria was short lived. The market continuously declined on Tuesday, Wednesday and Thursday. A number of factors prompted the bulls to retreat.

Weak government data on industrial production and 6 key infrastructure industries for the month of June caused panic in the market. Though the IIP numbers for June were much better than May, industrial production growth has halved in the first quarter of FY09 over the year-ago period. At 3.5%, growth of the six core sector industries for the April-June period too has been dismal.

Inflation at more than 12% was another concern. Addressing the nation on Independence Day, Prime Minister Manmohan Singh said that the Indian economy must grow at the rate of "at least 10 per cent every year to get rid of poverty and generate employment for all." A few days earlier, his Economic Advisory Council lowered the GDP projection to 7.7 per cent for 2008-09. In that context, he said that the government is taking "determined measures" to control inflation but cautioned against steps that could hurt growth.

Unfortunately, crude oil rose after the U.S. reported a bigger-than-expected decline in gasoline inventories on Wednesday.

One just does not know what to expect from the market anymore.