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Recovery, At Last

After a big dip last week, markets bounced back with a bang led by index heavy weights. Looking ahead, markets will take a cue from the incoming corporate numbers and the government's move on disinvestment.

The markets finally recovered from the last week's gigantic fall. The BSE Sensex added 75 points (2.6 per cent) -- the highest weekly gain over past eleven weeks -- and the S&P CNX Nifty ended the week up 19.3 points (2 per cent). The recovery was led by the index heavy weights, which saw renewed buying. The improved market sentiment was also reflected in a 10 per cent rise in trading volumes. On the institutional front, mutual funds returned to the market after two weeks and made net-investment of Rs 15 crore, whereas, FIIs remained net-sellers for the week.

Except on Monday, markets rose on each trading session. Renewed buying in index heavy weights -- Reliance Industries (RIL) and HLL -- led the correction. The share price of RIL surged by 15 per cent this week. Initially, it was news that the company has discovered a new gas field in the Godavari basin that led to the recovery. Later on the company's market beating Q2 performance -- its net profit jumped 25 per cent- contributed to the feel good factor. The FMCG maestro, HLL also recovered from its low, as RBI approved the increase in its FIIs holding limit to 49 per cent in the company from 24 percent. The FMCG Index ended the week up 3.4 per cent.

The other index constituent, SBI reported a 34 per cent rise its net-profit for the quarter, largely due to an improvement in net operating margins. This is the highest net profit by the company for any quarter till date. The share price of TELCO gained 10 per cent as the company reported positive Q2 profit of Rs 59 crore, as against a loss of 61 crore in the previous quarter. It was mainly driven by a 57 per cent rise in Indica sales.

Last week's biggest gainers -- technology stocks, which rose 6 per cent -- fell on profit booking this week. The BSE IT Index dipped 1.4 per cent, largely on account of fall in share prices of small and mid-cap stocks. The large-caps -- Infosys, Wipro and Satyam -- managed to remain in black. Pharma stocks saw renewed buying and consequently the BSE Healthcare Index surged by over 6 per cent.

On the PSU front, HPCL and BPCL once again turned active during the week following the Finance Minister's assurance that the disinvestment for the two would be taken up during the current fiscal. The former gained 7.3 per cent and latter moved up 2.3 per cent. The improved sales realization led to a 78 per cent rise in BPCL's second quarter net-profit.

October turned out to be a good month for two wheeler manufacturers, as leading auto companies registered a robust increase in sales. TVS Motor's sales grew 45.6 per cent followed by Hero Honda (24.6 per cent) and Bajaj Auto (21.6 per cent). However, it had mixed impact on their share prices. Bajaj Auto and TVS Motor were the gainers whereas Hero Honda's share price dipped 3 per cent.

On Wall Street, NASDAQ gained 2.2 per cent and the Dow Jones ended the week up 1 per cent, led by tech bellwether Intel and telecom giant SBC Communication. The indices went up despite rise in unemployment rate and drop in manufacturing sales.

Outlook
Though RBI has reduced the growth projection for the fiscal, the bank rate cut and the subsequent reduction in overall interest rates would definitely reduce the risk-premium associated with equity instruments, thus making equities much more attractive. In the near-term, markets will take cue from the incoming corporate numbers and the government's move on disinvestment.