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Markets in a Bear Hug

It was yet another week of rollercoaster ride for the bourses as apprehensions about the policy direction of the new government continued to haunt sentiment at the stock market.

The stock markets remained volatile over the past week in anticipation of the government's economic policy announcements. The newly elected United Progressive Alliance (UPA) government unveiled its Common Minimum Programme (CMP) on Thursday but it proved to be very common and very minimum and did little to allay investors' fears over the pace and the extent of economic reforms. Over the week, the BSE Sensex fell 2.54 per cent (or 126 points) to close at 4835 points. The S&P CNX Nifty was down 3.3 per cent to close at 1509 points. The broader indices also fell sharply on Friday to close in negative territory. The S&P CNX 500 fell 3.43 per cent and the CNX Mid Cap 200 declined by 1.1 per cent.

Extremely disappointed over the CMP that put disinvestment, labour reforms and privatisation of power utilities on the backburner, FIIs pressed heavy sales across the spectrum. They were net sellers for the fourth consecutive week as they pulled out Rs 352 crore from the markets. After remaining net buyers for three weeks in succession, mutual funds also turned net sellers to the tune of Rs 140 crore till Thursday. The combined average turnover for the week fell 8 per cent to Rs 6,303 crore.

The return of P Chidambaram as the Finance Minister came as a pleasant surprise for the markets and fuelled hopes that the new FM will keep the reforms' momentum going. The Sensex began the week on a positive note by gaining a healthy 3.3 per cent on Monday. Thereafter, it turned volatile and choppy in mid-week as the bears took charge and made the most of the uncertainty regarding the policies of the new government. On Friday, the Sensex crashed by 4.4 per cent wiping out over Rs. 51,000 crore of investors' wealth on across-the-board sell-off by investors disillusioned by the CMP of the government. Positive results from SAIL, SBI and Dishman Pharmaceuticals failed to perk up the market sentiment.

Among the sectoral indices, the BSE IT Index was the only one to end the week in the black. It gained 7.5 per cent over the week, propped up by hopes that the prospects of the Indian technology sector would remain unaffected even under the new government. PSUs and banks were the worst hit after the CMP confirmed earlier fears that privatisation of PSUs and banks would be largely off the new government's agenda. Banking shares led by SBI got hammered on Black Friday. The BSE Banking Index lost 6.1 per cent over the week as most of the PSUs as well as private sector bank stocks crashed. The BSE PSU Index didn't fare any better as it lost 6.9 per cent. The BSE Healthcare Index fell 0.7 per cent while the BSE FMCG Index registered a decline of 1.1 per cent over the week.

The global indices managed a week of solid gains for the first time in over a month as oil dropped below $40 a barrel easing worries about the impact of high energy costs. The Dow Jones gained 2.22 per cent to close at 10188 points while the NASDAQ also registered a gain of 3.9 per cent to close at 1987 points.

The markets will continue to take cues from the developments in the domestic political and economic front as well as global factors such as volatile oil prices and fear of interest rate hikes in the West. The market direction would also be affected by the course of action adopted by the FIIs.