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Rally Fizzles Again

It was back to basics again as weak earnings reports pulled the markets down. The markets will be guided by the corporate results, FII inflows and status of the Indo-Pak stand off. And a sharply rally will heavily rest on a strong technology result pronouncement.

Indian stocks staggered under the weight of what may have been a too much, too-soon tech rally, giving back gains made on first two trading sessions. The BSE Sensex ended the week flat (-0.4%), despite bullish NASDAQ, strong FII inflows and somewhat mixed Q3 results of leading Indian companies. The FIIs renewed interest in the Indian bourses was amply reflected in huge Rs 704.5 crore investments made during the week. Mutual funds continued their selling spree and sold stocks worth Rs 335 crore. The combined average turnover at both the exchanges crossed Rs 5000 crore with NSE taking the lead and stood at Rs 5780 crore – an 18 per cent rise since last week.

The derivatives market at NSE seems to be having a party time for the last two weeks with the traded volume in stock futures market touching the record Rs 700 crore mark. The average traded volume in stock futures rose by 31 per cent this week.

After gaining 6 per cent on first two days, BSE IT Index waned 16 per cent the following three days. Aggressive selling in tech stocks and not so healthy third quarter result of tech major Infosys dampened the investors' confidence. Infosys share price plunged by 12 per cent as its Q3 net-profit rose marginally by 2 per cent as compared to last quarter - one of its slowest ever quarter-on-quarter profit growth. Among second rung IT stocks, Mastek registered a net-profit of 48% as compared to Q2, whereas, DSQ Software, Sonata Sofware and Aztec performed badly. On the first week in the benchmark BSE Sensex, Hero Honda (with remarkable Q3 profit) outperformed the market, whereas, HCL Technologies lost 8.1 per cent. Key old-economy shares rose amid hopes of improved quarterly results. Shipping Corporation gained 17 per cent on disinvestment hope.

In the pre-budget meeting with finance minister, the financial sector has asked for margin trading to be made less restrictive in order to revive the capital market. Currently, bank's exposure to equities is restricted up to 5% of bank's total advances.

In economic news, J P Morgan revised its growth estimate for India in the current fiscal to 5.1% from an earlier estimate of 4.8%. However, the latest CSO data showed that industrial growth plunged to 0.9 per cent in November as compared to 2.6 per cent in October. In order to lower fiscal deficit, the government has hiked exice duty on petrol and diesel but has cut prices of these two products marginally.

In the US market, Fed chairman's warning that the economy still faces significant risks in the near term dampened the market on Friday. NASDAQ ended the week down 1.8 per cent and the broader Dow Jones shed 2.7 per cent.

Outlook
This week it was back to basics again – weak earnings reports do pull down the markets. And the markets direction remains unclear and will be guided by the corporate results, FII inflows and status of the Indo-Pak stand off. And a sharply rally will heavily rest on a strong technology result pronouncement.