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A Fitting Response

After taking a hit on Monday, stock markets recovered their poise to continue the upward march. The strength of the recovery could be gauged by the fact that there were four advances for every decline on the BSE and 12 advances for every one decline on the NSE, on the very next day.

It was another good week for the stock markets. The BSE Sensex closed the week at 4244.73 points registering a gain of 2.9 per cent. The S&P CNX Nifty performed even better, moving up 3.46 per cent to close at 1356.55. Broader markets also showed strong gains with the S&P CNX 500 ending the week 4.5 per cent higher at 1100.45. Mid-cap stocks did not lag behind either with the CNX Midcap 200 index recording a gain of 3.61 per cent.

FIIs made large investments in Indian equities. Net FII inflows for the week stood at Rs 536.8 crore. FIIs pumped in a phenomenal Rs 2090.7 crore in August, taking the net FII investment in the financial year to date to Rs 7005.7 crore. Mutual funds purchased equities to the tune of Rs 103.46 crore.

Market gains were accompanied by increasing volumes. Both exchanges registered a combined turnover of Rs 7215.2 crore a day. On the BSE, the advance-decline ratio increased to 0.89 on Friday compared to 0.59 for the previous week and a similar situation prevailed on the NSE.

The week started on a horrific note as two bombs exploded in Mumbai. Equity markets went into a tailspin and the BSE Sensex lost 120.49 points (2.92 per cent) that day. At its lowest point in the day, the index shed 227 points to reach 3944, before closing just above the 4000-mark. All sectors bled heavily with four stocks declining for every one that gained. Except for the BSE Healthcare index, which lost 1.69 per cent all sectoral indices lost between 3 and 4 per cent. Among index stocks the biggest losers were SAIL and Zee Telefilms, which fell by 10.4 and 8.9 per cent respectively.

The very next day financial markets gave an exemplary response to these acts of terrorism. The Sensex gained 147 points (3.69 per cent) and all sectoral indices moved up by more than 3.5 per cent each. The biggest gainers was the BSE PSU index (5.46 per cent) and this was followed by BSE IT, Banking, FMCG and Healthcare indices, which gained between 3.52 and 4.38 per cent. On the BSE, the advance-decline ratio shot up to 4.19 (previous day 0.25), while on the NSE it skyrocketed to 12.44 (previous day 0.09).

This winning trend largely continued throughout the week. Bank stocks were already moving up on account of the Repo rate cut, till they were felled by the twin blasts. This upmove restarted on Tuesday and was further strengthened by the news that the NSE was adding eight bank stocks to its futures and options list. Andhra Bank, Bank of India and Corporation Bank were the biggest winners gaining 20.97, 17.05 and 11.29 per cent respectively. These gains just about overshadowed Monday's losses and the Bankex gained 1.06 per cent over the week. FMCG stocks also could not significantly recoup losses and the BSE FMCG Index was by just 1.14 per cent.

Most of the action was concentrated in the pharma, IT and PSU counters. The BSE Healthcare index gained 9.82 per cent. Pharma stocks moved up on account of better prospects following news of a possible agreement during WTO talks. This agreement would allow India to supply drugs to poor countries. Cipla and Ranabxy soared by 10 and 5.2 per cent respectively on Friday.

Overseas, the Nasdaq was up 2.62 per cent over the week. In comparison, the BSE IT index showed a stronger performance surging ahead by 7.69 per cent. Gains by technology majors Infosys, Wipro, Satyam and Digital Globalsoft were largely behind this. On the PSU counters, energy stocks propelled the BSE PSU index by 5.17 per cent.

Outlook
The stock market rally seems unstoppable. The Monday blasts, which otherwise would have triggered a correction, were brushed aside. This was the sixth consecutive week when markets headed northwards. Though FII inflows remain strong profit-booking, leading to a correction, should not be ruled out.