Markets started the week on a firm note, helped by gains across Asian markets. Cement stocks rallied ahead while telecom stocks continued their up trend. ONGC and select technology stocks also ended with good gains

Tuesday saw a major correction as the frontline indices lost well over a per cent each. Weakness in the US markets on Monday triggered a sell-off in technology stocks. Metal and oil stocks also lost substantial ground, exerting pressure on the indices

Markets recovered on Wednesday, but gave up most of their gains in afternoon trades. Cement stocks resumed their rally and were supported by select pharma and FMCG stocks. Oil stocks remained under pressure as retail fuel prices were reduced.

Thee last day of settlement for the November series of F&O contracts on Thursday saw some volatility in the indices. After opening firm, they gave up most of their gains in the afternoon before a late rally lifted them back to earlier highs. Technology stocks and banking stocks did well while oil-marketing stocks extended their losses.

Despite the mixed trend in Asian markets, the indices rallied on Friday and set new lifetime highs. The Nifty crossed 4000 for the first time ever in intraday trades while the Sensex moved closer to 14000. The rally was led by engineering, autos and PSU banking stocks, supported by select telecom stocks and heavyweight Reliance Industries.

The Sensex gained 141 points or 1.03 per cent during the week and the Nifty added 47 points or 1.19 per cent over the week.

Mid-caps and small-caps mostly followed the trend in frontline stocks and did modestly better than the large caps for the week. They started the week on a strong note and came under pressure on Tuesday. After Wednesday's recovery, they again lost ground on Thursday before resuming the rally on Friday.

The CNX Mid-Cap 100 index closed the week with gains of 74 points or 1.47 per cent for the week.

Domestic economic and regulatory action

• The decision to cut fuel prices was clearly forced on the government and came as a surprise for the markets. The oil minister had earlier stated that a price cut would be considered only if crude oil prices fall to $52 per barrel. After the decline to around $55 per barrel during the second week of November, prices have recovered again and are currently hovering around $63 per barrel. Crude oil prices may rise further, if winter demand is higher as predicted. For next year, some analysts have forecast an average price of over $70 per barrel.

  Now that the prices have been reduced under pressure from the political leadership, it won't be easy to increase prices in the short term even if crude prices rise further. Oil marketing companies, which were limping back to profits, would once again see heavy losses and would have to be partly rescued by the government through oil bonds.

  Under-recoveries on diesel, petrol, kerosene and LPG for all the PSU oil marketing companies together were in excess of Rs33,000 crore during the first half of the current financial year. The government shared part of the burden by issuing oil bonds worth Rs14,500 crore while the rest was shared by oil companies – including upstream companies like ONGC and Gail. If prices average between $60 and $65 per barrel for the current quarter and the next, total under recoveries for the full year may be close to Rs50,000 crore.

  On the positive side, the government expects lower fuel prices to help in holding inflation at the current levels of below 5.5 per cent. This may not happen, as much of the inflationary pressure is coming from higher prices of primary food and non-food articles.

• Cumulative FII inflows into the country since 1993, when portfolio investments by overseas investors were allowed for the first time, have crossed $50 billion as of end-November. Over the last 13 years, India has been a happy hunting ground for overseas investors. The $50 billion they have invested in Indian shares have appreciated substantially and the value of their current portfolio holdings is estimated at a staggering $115 billion.

  There are many who argue that portfolio investments by overseas investors do not generate the kind of economic benefits foreign direct investments (FDI) bring to the country. While FDI finances the creation of new assets, more employment opportunities and are more committed long-term investment, portfolio investors are generally seen as short-term opportunists who can trigger a financial crisis during a downturn in the economy.

  Such arguments ignore the effect portfolio investments have on domestic companies. If the country can now boast of a very dynamic private sector, confident and ready to penetrate overseas markets, part of the credit should go to fund inflows from overseas investors. Apart from improving fund availability, the influence of global investors has forced domestic companies to think and plan on a global scale. Their corporate governance standards have improved beyond recognition and the increased visibility has helped Indian companies to access overseas financial markets.

• Wholesale price inflation for the week ended 18 November increased to 5.45 per cent from 5.29 per cent reported for the pervious week. Higher prices of manufactured goods and minerals were mostly responsible for the rise even as primary food articles became marginally cheaper. Inflation was at 4.27 per cent during the same week of previous year.

US markets, global economy and oil

• US markets declined for the week, continuing the downtrend from the previous week. The indices saw one of their steepest falls in recent months on Monday as the weakening dollar and higher crude oil prices raised concerns about lower consumer spending. These fears were supported by subdued sales growth by major retailers and all the indices lost out substantially. After recovering modest ground for the next two sessions and a flat closing on Thursday, the indices again came under pressure on Friday after a report showed that US manufacturing sector may be turning weak even as input prices are rising.

  The Dow lost 0.7 per cent for the week while the S&P 500 gave up 0.3 per cent. Technology stocks, which have been out-performing for many weeks now, were the worst hit and the NASDAQ ended 1.9 per cent lower for the week.

• Crude oil prices sustained the up trend during the week on continued forecasts of a colder winter in the US and more talk about another production cut by OPEC. Lower than expected US fuel inventory put additional upward pressure on prices. Stocks of heating oil in the US declined for the latest reporting week, even as winter demand is peaking. Stocks of crude oil and refined products were also lower than expected.

  OPEC said the oil market is overall oversupplied as the cartel prepares to start discussions to go on for another production cut. OPEC had announced a cut of 1.2 million barrels daily in October. However, some analysts believe that further production cuts may be delayed if winter demand keeps oil prices around current levels.

  Near month futures on the NYMEX maintained an up trend for most of the week and went past $63 per barrel by Thursday. The commodity gained around 5 per cent for the week and settled at $63.43 per barrel. This is the biggest weekly gain for crude oil prices in recent months and comes after a 6 per cent decline two weeks ago.
  

*Disclaimer: The author may have positions in the stocks mentioned above at the time of writing this article. This analysis/report is only for the purpose of information and is not an investment advice. Readers are advised to consult a certified financial advisor before taking any investment decisions. While efforts have been made to ensure the accuracy of the information provided in the content the author or publisher shall not be held responsible for any loss caused to any person whatsoever.