Inflation zoomed, global crude prices inched closer to their historical peak, monsoons continued with their "around but not quite there" game and yet the Indian equity market registered healthy gains during the week. Kudos for this should go to the finance minister for finally bestowing the market with his long-awaited corrections to the applicability of the securities transaction tax and to the Indian corporates, which continued to prove that the "India Shining" story is far from over.
The markets welcomed the finance minister's clarification over the securities transaction tax with open arms. The bell-weather indices like the BSE Sensex and the S&P Nifty moved up, gaining 2.47 per cent and 2.67 per cent respectively. The rally was broad-based as was reflected in the sharp gains registered in the S&P CNX 500, which gained 2.78 per cent during the week and the CNX Mid-Cap 200 gaining a smart 3.17 per cent in the same period. Mid-cap stocks continue to be in favour with investors given their perceived undervaluation and their strong financial performance this quarter.
The BSE IT Index gained only 0.3 per cent during the week. On Tuesday, the index lost almost 1.4 per cent following the announcement of the price band for the TCS initial public offering. Most institutional investors and fund managers feel that the TCS stock is a must-have in everybody's portfolio. As a result, markets are now rife with the news that funds are slowly reducing their holding in IT stocks in order to allocate funds to subscribe to the TCS public issue. The BSE Healthcare Index gained only 0.76 per cent during the week. However, among mid-caps, Wockhardt was a major gainer. The FMCG sector continues to tremble as fears of a weak monsoon slowly metamorphosed into reality. In such a scenario, FMCG stocks are likely to be under the hammer as they would have to grapple with a twin-sided squeeze coming from slashed prices and low volumes. The BSE FMCG Index declined 1.08 per cent during the week and barring Friday the index registered a decline throughout the week. The BSE PSU Index registered a sharp increase of 4.38 per cent during the week. The major gainers were the refinery and the banking stocks. In fact, banking stocks were the flavour of the week, with the BSE Bankex zooming ahead by almost 5 per cent. ICICI Bank was the major gainer followed by Corporation Bank, Canara Bank and Union Bank of India.
Week-on-week the combined average turnover on both BSE and NSE increased by a whopping 24.5 per cent. However, considering that the volumes had taken a severe beating the previous week due to the uncertainties cast over the future of certain market participants by the Securities Transaction Tax, this increase was not all that phenomenal. In fact, with the dark clouds lifting, market activity was back to its average level. Gainers outpaced losers almost throughout the week barring Tuesday when the market had registered a fall.
Buoyed by healthy earning figures of Indian corporates both in the large-cap and the mid-cap segments, FIIs were heavy buyers throughout the week. Their net holdings increased by Rs 376.4 crore over the five trading days. Domestic mutual funds, however, did not share the same optimism and their equity holdings were down by Rs 193 crore till Thursday evening. However, the equity market's loss turned out to be the debt market's gain as mutual funds increased their debt exposure by Rs 267.76 crore over the same period.
The Dow Jones closed below 10,000 for the first time since May 24, down 1.75 per cent over the week, amidst weak earnings from blue chip companies. The NASDAQ could not escape the rod either and plunged 1.8 per cent, as continued weakness in the semiconductor industry and Microsoft's weaker than expected earnings caused it to plummet to its lowest close in 2004.
Outlook
With the Sensex crossing the 5,000 mark, market participants feel that maybe it is time for another so-called "correction". If that doesn't come about, then are we heading for another bull-run? Will Indra, the rain-god, smile on north and northwestern India? The answers to these questions will decide where the markets head in the coming few weeks.
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