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Choppy Market, Wary Investors

Indian stock markets ended a choppy week with marginal gains as foreign funds returned tentatively to the market.

Indian stock markets remained highly volatile over the past week, driven by concerns over the influence of Communists on the new government which took office two weeks ago. Finance Minister P Chidambaram's Mumbai visit to reassure investors that economic reforms would continue didn't help the markets. Over the week, the BSE Sensex gained 1.11 per cent (or 54 points) to close at 4889 points. The S&P CNX Nifty was up 0.82 per cent to close at 1521 points. The broader indices also remained volatile. The S&P CNX 500 gained 0.12 per cent. However, the CNX Midcap 200 lost 3.12 per cent over the week.

Market sentiment received a major boost this week from signs that foreign institutional investors were resuming purchases after pressing heavy sales last month. They pumped in Rs 580 crore over the past week, after four consecutive weeks of heavy across-the-board selling. Mutual funds carried forward their selling streak from last week, remaining net sellers to the tune of Rs 156 crore. Trading volumes remained thin as the combined average turnover for the week fell to Rs 5,955 crore, down 5.5 per cent from last week.

The markets started the week on a negative note as growing fears that the new government's populist measures were likely to put pressure on the country's fiscal deficit, restrained investors from making fresh purchases on the bourses. Global factors such as mounting oil prices in the wake of violence in Saudi Arabia also played on the minds of investors and traders. The Sensex lost 1.6 per cent on Monday. Thereafter, the positive FII inflow data and the Finance Minster's much-hyped trip to Mumbai to reiterate the government's reformist stand propped up sentiment on Dalal Street and the market bounced back.

But the bears roared again on Thursday as the Sensex shed 2.2 per cent on the back of a knock-out cocktail of domestic and global factors – oil prices, hedge fund sales, speculator unwinding and short sales in futures. The Finance Minister's crucial meetings with FIIs and other market participants failed to uncover any firm policy direction or market-friendly measures. However, the markets ended the week on an optimistic note. The Sensex gained 1.5 per cent after remaining highly volatile amid alternate bouts of buying and selling on Friday.

Among the sectoral indices, the BSE Banking Index was the major gainer, rising 3.1 per cent over the week. State-run banks, beaten down in recent weeks on fears of a slowdown in banking reforms, turned out to be the prominent winners. The BSE PSU Index also gained 1.42 per cent as state-run refiners, hammered after the government ruled out privatisation of profitable PSUs, recouped some of their losses. Also, among the gainers was the BSE IT Index, which was up 1.1 per cent. BSE Healthcare and BSE FMCG indices ended the week in the red, shedding 2.65 and 0.09 per cent respectively.

Global indices remained volatile, spooked by the prospect of an energy crisis in the wake of mounting oil prices. However, strong employment growth figures for the past month relieved investors fueling a bounce-back. Intel's strong sales trends gave tech stocks a badly needed boost. Over the week, the Dow Jones gained 0.37 per cent to close at 10243 points. NASDAQ also recouped its mid-week losses to close at 1979, with a marginal loss of 0.3 per cent.

The markets are likely to stay range-bound with thin volumes until the government releases its Budget in the first week of July, clearly spelling out its policies and programmes. Until then, institutional investors are likely to stay on the sidelines, while traders would be active fueling more and more volatility.