After last week's and in general last month's stupendous gains, it was largely believed that the markets would in all probability witness a correction and price movements would be range-bound. The script unfolded quite the way the markets had anticipated. What came as a rude shock though was the inflation rate which has sky-rocketed up to 7.51 per cent from 6.52 per cent a week earlier.
As far as the performance of the equity markets over the last week is concerned, almost all the indices remained range bound and showed minor appreciation. The Nifty increased by a mere 0.07 per cent, the Sensex by 0.52 per cent and the broader S&P CNX 500 by 0.63 per cent. The CNX Mid Cap 200 was the only index which showed a healthy 1.94 % gain. This was primarily because on Friday when most large caps had taken a beating, quite a few mid-caps in the textile, sugar and paper sector had moved up.
Among sectoral indices, IT stocks were expected to be in the limelight because of the TCS IPO which concluded last Thursday and is said to have been oversubscribed many times over in each of the separate segments – the retail investors, HNIs and QIBs. However, it meant that to grab a share of the TCS pie many institutions had to offload stakes in other IT stocks. As a result, the BSE IT index, lost 0.15 per cent during the week. The BSE Healthcare index too lost 0.45 per cent during the week, but the interesting fact was that when most sectors took a pounding on Friday, the healthcare sector managed to stay firm.
Belated showers offered some comfort to the FMCG sector, and the BSE FMCG index managed to register a 0.45 per cent gain. PSU stocks witnessed heavy profit-booking, with Monday's and Thursday's gain being immediately followed by Tuesday's and Friday's drops. Over the week, the BSE PSU index gained 0.39 per cent. The BSE Bankex gained 0.59 per cent during the week, mirroring the overall trend in the market. However, with inflation sky-rocketing, there is bound to be upward pressure on bond-yields and interest rates in general. This could adversely affect the banks' net interest margin and thus their profitability in times to come.
FIIs again bought heavily, increasing their equity holdings by Rs 351.7 crores during the week. Markets are also awaiting the outcome of the SEBI task-force investing into claims that Middle-East based NRIs are indulging in day-trading as against delivery-based trading through broking terminals situated across various cities in the Gulf region. Mutual funds, on the other hand, continued to sell; till Thursday the funds had collectively shed Rs 107.12 crores from their total equity holdings. Market activity was sound but nowhere close to the hectic pace that had been observed last week. The combined turnover on both NSE and BSE declined 7.6 per cent on a week-on-week basis and was back to their two-week earlier level.
There was turmoil in US markets with the Dow Jones declining 3.20% and the Nasdaq Composite declining 5.85%. The latest government survey on unemployment showed that a U.S. economy that was expected to have created some 240,000 net new jobs in July managed instead to produce just 32,000, as cuts in the finance and retail sectors offset a small gain in manufacturing. With this, fears have gripped the US markets that the recovery story might well be over.
The market is unlikely to see a sudden spurt in stock prices given that most feel the market requires further correction. The high inflation times witnessed in recent weeks would also be a major worrying factor. If the much anticipated hardening of interest rates does come about, it will raise corporate buying costs and adversely affect their profitability.
The good news is that monsoons are back on track and hopefully the drought situation can be salvaged at least to a large extent. This will surely be good news for quite a few sectors like FMCG and other agri-based industries. The outlook also looks positive for the cement, auto and steel sectors all of which have managed to row against the declining market tide. So wait and watch and definitely don't panic.