Stock markets hate uncertainty as has been evident in the past few months, with bears taking complete charge. Even a market-friendly Budget failed to improve sentiments. As a result, after a gap of many years there was no substantial pre-Budget rally. With war finally having started in Iraq this week, a large part of the uncertainty has ended and in place are expectations that the war will be short.
In a repeat trend of the 1991 Gulf war—when stock markets fell sharply just before the war and recovered from the day of the war—stocks made a recovery on Wednesday and Thursday. Over the week, the BSE Sensex moved up 3 per cent and the Nifty gained 2.6 per cent. The rally was more pronounced in large-caps vis-a-vis mid-caps—the CNX Mid-cap Index gained only 1.3 per cent. The broad markets as represented by the S&P CNX 500 gained 2.1 per cent. In the US, the Nasdaq and the Dow Jones continued to gain ground, with both indices clocking sharp gains of 6 per cent and 8.4 per cent, respectively.
At home, the technology counter showed sharp recovery too. The BSE IT Index, which had made substantial losses in the past two weeks, climbed up 5.5 per cent this week. The frontline IT stocks, Infosys and Satyam, rose 8 per cent and 5 per cent, respectively. The mid-cap IT stocks, Digital and I-Flex also posted heavy gains. Most IT stocks witnessed heavy volumes on the penultimate trading session of the week as the attack on Iraq intensified.
The BSE Healthcare inched up nearly a per cent. With Ranbaxy Laboratories getting USFDA approval for one of its drug, the scrip gained 2.7 per cent over the week. The FMCG index, on the other hand, remained flat. Steel major TISCO managed to gain 4.2 per cent on the expectation that the demand for steel will go up once the war ends.
Other developments that transpired this week included paints major Asian Paints deciding to delist from seven regional stock exchanges since trading volumes are very low there. However, the company will continue to be listed on the BSE and the NSE. In another development, the Calcutta Stock Exchange said that it would move the settlement cycle to T+2 days from the T+3 days cycle it follows currently.
Institutional buying was visible this week with FIIs picking up equities worth Rs 89 crore as compared to Rs 5 crore the previous week and mutual funds buying equities worth Rs 87 crore.
Outlook
Stock markets could continue to rally provided the war ends quickly. However, if the war prolongs, markets may turn jittery on fears of dim business prospects in the near future.
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