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Markets Cautious

Reeling under political and economic worries, the markets preferred to adopt a wait and watch approach ahead of the Union Budget.

Already wobbling under pressures of political and economic worries, the markets weakened further in the absence of any significant trigger thereby adopting a cautious approach ahead of the Union budget. The markets are also worried that inflation will rise after the government announced a hike in oil prices. ONGC, India's most profitable company, put up a poor performance, registering an 18 per cent decline in its profits. This was due to it sharing the subsidy burden with oil marketing companies and an appreciation in the value of rupee against the dollar.

Consequently, the BSE Sensex closed with a marginal fall of 0.3 per cent at 4756 points, while the S&P CNX Nifty settled the week at 1488 points, registering a marginal decline of 0.2 per cent. The broader indices also fell. The S&P CNX 500 plummeted nearly one per cent while the CNX Midcap 200 nosedived 1.6 per cent as mid-caps too bore the brunt of a dull trend.

Trading volumes surge as the average daily turnover rose around 14 per cent over the previous week to Rs 5,663 crore. The advance-decline ratio was 0.9 last week. Uncertainty over the new government's economic agenda has kept FIIs out of the market. They were net sellers for the week to the tune of Rs 210 crore. Mutual funds, too, continued their selling spree with net outflows of Rs 256 crore this week.

The week started on a bearish note with the Sensex falling 31 points to 4739 points as banking shares slipped amid concerns over the government's plan to increase farm credit from lending institutions to around 30 per cent. The hesitancy among the investors continued on Tuesday as BSE Sensex fell 3 points in a lacklustre trading session. However, markets witnessed an across the board selling on Wednesday with the Sensex falling 92 points. On Thursday, a smart comeback led by impressive volumes halted the three-day losing streak, and the Sensex gained 64 points to 4708 points. There was also news that India's largest private sector company, Reliance Industries, discovered gas off the Orissa coast with estimated reserves of 4-5 trillion cubic feet. Also, the company acquired a German based polyester firm Trevira, making it the largest polyester player globally. Friday also saw good buying interest in the market with the Sensex rising 48 points.

In sectoral indices, the BSE Banking index fell 3.4 per cent due to the fear of a hike in interest rate which will erode banks' profit margins. The beating in bank stocks was also attributed to the government's announcement of a loan-restructuring package for farmers. The BSE PSU index fell 2.4 per cent as ONGC's unimpressive performance had its impact on other oil sector stocks. However, the BSE IT index bucked the downward trend amid expectations that tech stocks would not be affected by the change in the government. A sharp fall in prices of generic drugs in the international market saw BSE Healthcare index declining nearly 2 per cent. The BSE FMCG index shed a marginal 0.6 per cent.

In global indices, NASDAQ was up almost 2 per cent at 2025 while Dow Jones plunged 0.4 per cent to close at 10372 points. The markets are expecting a marginal rate hike in the much-awaited Federal Reserve meeting slated for the next week.

Outlook
The markets are likely to adopt caution ahead of the Union Budget, to be announced on July 8. The bearish undertone is likely to continue on fears of a further rise in inflation. Also, apprehensions regarding US interest rates will keep the markets in a guessing mode. Till then, the markets are likely to hover in a range bound terrain.