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Testing Times

A turbulent week, but the bulls managed to have the last word, making it the seventh straight week of gains

It was the seventh straight week of gains. But it had its bad moments.

Monday (April 20) caught the bulls on the wrong foot. Asian markets declined in the morning trades on the back of worsening earnings. The gloom spread to the Indian shores and a highly volatile market kept pushing the indices into the red and green. The market closed lower with 19 of the Sensex stocks closing in negative territory. The BSE Banking index was the top loser while BSE Metal, BSE Capital Goods and BSE Realty bucked the negative trend.

The U.S. market tumbled on concerns about the financial sector earnings. Bank of America slumped 24% and Citigroup Inc. declined, 19%. That did not help the market on Tuesday. The gloom continued for the next two days with the market closing lower.

Despite U.S. indices closing in the green on Tuesday, the market slumped after a strong opening on Wednesday. The Sensex swung between negative and positive thereafter, investors turned cautious due to lack of clarity. The Sensex tumbled in the afternoon session but buying at lower levels helped pare some of the losses.

On Thursday and Friday, the bulls got the upper hand and the market ended the week at 11,329.05 (up from 11,023.09 the previous Friday - April 17). On Friday, all the 13 BSE sectoral indices posted gains for the day

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FIIs bought stocks worth Rs 14.56 billion during the week while domestic institutional investors sold stocks worth Rs 7.67 billion.

What was good...

Growing optimism over some signs of recovery in the global economy and the banking sector continued to drive the key indices higher. Moreover, Q4 numbers did not throw up any major negative surprises.

On Tuesday, the RBI reduced the repo rate to 4.75% (from 5%) and the reverse repo rate to 3.25% (from 3.5%). The country's largest private sector lender ICICI Bank was the first to cut interest rates, but housing loan major HDFC said it has no plans to cut the rates now. ICICI Bank cut both lending and deposit rates by up to 50 basis points. Describing the RBI's stance as an innovative and far-reaching policy, ICICI Bank's MD & CEO, K.V. Kamath, said that it would have a significant impact on spurring economic growth in India.

According to news reports, rating agency CRISIL stated that bad assets at Indian banks are likely to triple to Rs 1.9 trillion over the next 2 years because of the economic slowdown and its impact on corporate borrowers, but strong capitalization will enable lenders to absorb the impact.

What was disappointing but far from alarming was that inflation inched upwards marginally. The annual point-to-point inflation for the week ended April 11, stood at 0.26% as compared to 0.18% for the previous week.