After last week's strong rally, most expected the Sensex to cross the 10000 mark this week. However, despite several attempts and coming as close as 6 points, the index could not reach the much anticipated level.
Markets opened strong on Monday and the Nifty crossed the 3000 mark for the first time in early trades. The Sensex also saw a new intra-day lifetime high before the markets slipped sharply in afternoon trades. This was a trend which repeated during a couple of session during the week.
Tuesday saw a recovery led by metal and engineering stocks. The Sensex and Nifty closed above 9900 and 3000 respectively for the first time ever.
The Sensex saw a high of 9994 on Wednesday before declining sharply in afternoon trades. Some of the index socks like Jet Airways and Gujarat Ambuja Cements saw heavy losses.
The trading pattern repeated on Thursday as the Sensex slipped after going past 9900 and the Nifty declined from 3000 levels. Both indices closed with marginal losses.
The indices traded lower on Friday as global markets turned weak on expectations of rising interest rates. Heavyweights like ONGC and Reliance industries lost considerable ground.
The Sensex lost 128 points or 1.3 per cent during the week and the Nifty gave up 43 points or 1.44 per cent over the week.
Mid-caps opened the week with losses of nearly a per cent on the index on Monday. After modest recovery during the middle of the week, the smaller stocks again came under pressure on the last day of the week. Sectors like sugar and tea attracted good buying interest on expectations of higher product prices. Stocks of companies which announced good results saw substantial gains. The CNX Mid-Cap 100 index lost 56 points or 1.29 per cent during the week.
Domestic economic and regulatory action
- The central government finally seems to be gaining enough confidence to resist the pressure from the Left parties against reforms. So far, the government has flatly refused to yield to the airport employee unions, backed by the Left, who are striking against private participation in the modernisation of Delhi and Mumbai airports.
Whatever be the merits of the arguments against private participation in airport modernisation, whether to involve private companies or not is part of policy making by the government. If it has any objections to the policy, the Left parties should raise them politically rather than using PSU employees to score a political point.
For decades political patronage to militant trade unionism has been the root cause for the pathetic service and performance standard in India's blighted public sector. Some of the airport union leaders, addressing the media in the last few days, proudly stated how their agitation had succeeded in stopping many services in the airports, unmindful of the huge inconvenience to passengers. Genuine labour leaders would have been ashamed at causing such inconvenience to customers.
The government has already made it absolutely clear that it would not back down from the current policy of involving private companies in airport modernisation projects. On the other hand, it has also assured the airport employees that their jobs would be protected.
The new found confidence of the government is good for the future of reforms in the country. To maintain the growth rates at these levels, before aiming at the higher levels being talked about by the government, further reforms in key sectors are vital.
- Wholesale price inflation for the week ended 21 January increased to 4.51 per cent from 4.4 per cent reported for the previous week. Prices of primary food prices like sugar, pulses and coarse cereals increased while vegetable prices declined. Prices of manufactured goods showed a marginal increase.
US markets, global economy and oil
- US markets had a poor week as the indices gave up part of their gains from the previous week. Market sentiment was affected by expectations of further interest rate hikes by the US Fed over the next couple of quarters. Lower than expected quarterly numbers from such high profile companies like Google and Amazon further affected investor sentiment despite good numbers from Boeing.
The Dow lost a per cent during the week while the S&P 500 declined 1.5 per cent. Technology stocks were the worst performers and the NASDAQ lost around 1.8 per cent.
- The US Fed raised short term interest rates this week by 25 basis points to 4.5 per cent annually. This is the 14th straight rate hike in less than 2 years from as low as 1 per cent during the first half of 2004.
The language in the policy statement following the announcement saw some significant changes on future interest rate outlook. The Fed said "some policy firming may be needed" to manage inflation and ensure steady economic growth, as against its earlier statement that interest rates are likely to rise at a "measured pace".
- US unemployment fell below the 5 per cent mark for the month of January, the lowest in almost 4 years. The US economy added nearly 2 lakh jobs during the month and the government revised the job additions for the previous 2 month by around 80,000. Average wages increased by 0.4 per cent during January and as much as 3.3 per cent as compared to the prior year period.
Consumer confidence is also rising in the US, which should be good news to retailers and consumer goods manufacturers. A revival in consumer spending is vital for the US economy to recover from low growth reported for the December quarter.
- Low unemployment and rising wage rates should cause some worries to the US Fed. Earlier this week, the US central bank had voiced its concerns about possible inflationary pressures from higher 'resource utilisation', the Fed phrase for tighter labour markets.
A large section of economists and analysts were expecting the US Fed to stop increasing interest rates after this week's hike. Low US GDP growth rate reported for the December quarter and stable price levels further supported this view.
However, most economists are now of the view that another 25 basis point hike is almost certain in March which may be followed by one more hike in the second quarter. That would take the overnight Fed fund rate to 5 per cent per annum by the middle of the year.
- Crude oil remained strong during the early part of the week and went very close to $69 per barrel by the middle of the week. Concerns over escalating tensions between Iran and the international community kept the prices at higher levels. Though the Nigerian government expects production to be back to normal by this month, rebel groups have threatened further attacks to disrupt production.
Prices started declining by Wednesday after the US inventory reports which showed an unexpected increase in stocks. The decision by OPEC not to cut production levels led to more selling by traders and large funds and the commodity declined below $65 by Thursday.
Friday saw some volatility in crude prices. After trading weak earlier in the day, prices recovered as the IAEA looks more likely to refer the Iran issue to the UN Security Council. March futures on the NYMEX closed at $65.37 per barrel for the week, a loss of nearly 4 per cent over the week.
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