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Bulls Retreat After a Brief Outing

With the earnings season coming to an end, the markets are expected to be lacklustre and wait fort the next trigger. The war continues to be the weak point for markets

No good news seems to sustain the bull fervour on Indian bourses for long. Triggered by an encouraging monetary policy, the bellwether 30 share BSE Sensex surged by 60 points to touch a high of 3060 since US attacks. However, despite strong US markets, the domestic bourses faltered in every other trading session and ended with a mere 6-point gain at BSE and NSE. The euphoria over the credit policy was ephemeral as domestic funds offloaded equities worth Rs 129 crore during the week. On the contrary, foreign funds continue to pump in money with the net monthly investments crossing Rs 800 crore after May 2001. Further, net foreign investments were at an all time high of Rs 13191 crore in the current calendar and hint at the bolstering bullish outlook.

Among the score of old economy, technology and services sector companies' results, which flowed throughout the week, Digital Globalsoft, Bajaj Auto, L&T, Satyam and Cipla disappointed the markets. However, the cut in bank and CRR rates brought cheer to the banking stocks, which gained an average 7 percent gain Thursday.

With, poor credit off-take and falling tax revenues, RBI toed the line of its global peers and lowered interest rates to rev up the economy. The apex bank also acknowledged that the economy was in a grip of recession and estimated that the GDP for the current fiscal would grow by 6 per cent, a growth rate already predicted by various economy-tracking agencies. However, the widely held consensus is that a 50 basis points cut in the bank rate, which acts as benchmark for the overall lending rates, will not be enough to rejuvenate the economy. Instead, all eyes are now set on the government to boost spending in key areas like infrastructure and aggressively disinvest to pep up the growth rate.

Universal Banking: A Step towards Financial Sector Reform
Chained by a bloated non-income yielding asset class, a bureaucratic set-up and lack of access to cheap-deposits for developmental disbursements, DFIs like ICICI, IDBI and IFCI have been losing ground to the more technology savvy private banks with widespread presence. ICICI, with its decision to merge itself with its banking offshoot, ICICI Bank has signaled that the Indian Financial system is finally moving towards universal banking. The concept houses all the functions like term and retail lending, project financing, insurance and retail financing under one roof. However, the pains faced by FIs during this transition into banks' regulatory norms will determine the success of universal banking in India.

With the earnings season coming to an end, the markets are now expected to move in a narrow range and wait for the next trigger. The markets will also keenly track the government's attempts to rejuvenate the economy. Further PSU stocks could be in the limelight if the disinvestment ministry takes some bold steps in selling the public sector jewels.