After the previous week's volatility, indices started firm on Monday. However, they could not hold on to their gains and ended modestly higher. Engineering and capital goods and auto stocks attracted good interest while cement stocks came under pressure. Bharti Airtel also saw some good interest

Volatility continued on Tuesday, but the indices ended with much better gains. Select technology stocks did well

Wednesday saw a sharp fall in the indices as global indices came under heavy pressure. The Sensex dropped more than 450 points while the Nifty shed close to 130 points. Banking stocks were the worst hit in the carnage and the BS bank index lost nearly 4.5 per cent. ICICI Bank saw a sharp fall and ended nearly 5.5 per cent lower

Indices attempted a pull back on Thursday morning and the Sensex gained nearly 250 points. However, the indices could not hold on to their gains and ended with marginal gains. Metals and select technology stocks did well while banking stocks remained under pressure

Friday saw some additional pressure on frontline stocks as other Asian markets could not hold on to early gains. Higher than expected inflation led to fresh fears of further interest rate hikes. Engineering and capital goods stocks were the worst hit while oil stocks did well on lower crude oil prices.

Sensex lost 455 points or 3.53 per cent for the week and the Nifty declined 109 points or 2.93 per cent over the week. The Sensex and Nifty have lost around 14 per cent each over the last four weeks.

Mid-caps and small-caps were relatively better off this week. CNX Mid-Cap 100 index closed the week with losses of 57 points or 1.22 per cent for the week.

Domestic economic and regulatory action

• Industrial growth for the month of January at 10.9 per cent was much better than expectations and has helped ease concerns about a growth slow down. An upward revision in growth for December has taken industrial growth for the first 10 months of this financial year to 11 per cent.

  Though much lower than the record growth of 15.4 per cent last November and 12.5 per cent in December, industrial growth in January is better than 8.5 per cent achieved for the same month of previous year. The strong growth was mostly on account of an unexpected jump in mining growth and sustained growth in manufacturing and electricity generation.

• Domestic credit rating agencies have come out with conservative GDP growth forecasts for the next financial year, probably because of the government's frenetic efforts to cool inflation. The RBI may also continue to tighten its monetary tools next year to manage inflation, which would affect growth rates.

  Crisil, the country's leading credit rating agency and a subsidiary of Standard & Poor's, has forecast GDP growth for the next financial year at between 7.9 per cent and 8.4 per cent. The agency expects inflation to moderate to between 5 and 5.5 per cent during next year. ICRA, the other major rating agency, is slightly more optimistic and expects next year economic growth at 8.5 per cent. Farm output growth would decline to 2 per cent, according to the ICRA forecast.

  However, some of the foreign investment banks still don't expect domestic growth to decelerate. Lehman Brothers has forecast Indian GDP growth for the next financial year at 9.9 per cent. Lehman says credit growth and the wealth effect would sustain consumer demand, despite the possibility of tighter monetary policies.

• Wholesale price inflation for the week ended 03 March increased to 6.46 per cent, way above consensus estimates of around 6.3 per cent, from 6.1 per cent reported for the pervious week. Budget measures to fight inflation continue to have the opposite effect and, not surprisingly, cement prices rose for the week as manufactures passed on the excise duty hike. It remains to be seen if cement prices would cool down in the coming weeks following the government's agreement with cement manufacturers.

  More worryingly, vegetable prices increased sharply during the reporting week and were a major contributor to higher inflation. This increase is still seen as an aberration and food prices may come down in the coming weeks. However, overall inflation level is likely to remain in the 6 per cent to 6.5 per cent range for the next few months. And, despite the surge in the last couple of months, average inflation for the current financial year is likely to remain within the RBI's target range of between 5 per cent and 5.5 per cent.

US markets, global economy and oil

• US markets continued to decline this week on persistent worries about rising mortgage defaults affecting more banks and financial services companies. To make matters worse, inflation data - both at the producer price and consumer price levels – came in at higher than expectations, further easing hopes of an interest rate cut by the Fed. Lower interest rates would have partly helped the mortgage lenders to come out of their troubles.

  The Dow lost 1.4 per cent for the week while the S&P 500 index gave up 1.1 per cent. NASDAQ declined close to 0.6 per cent for the week.

• Even as the global financial markets continue to fret about a possible economic slow down, OECD has no such worries. The organisation of industrialised countries expects better growth in the Eurozone and sustained performance by major Asian economies to counter the possible slowdown in the US. Even in the US, the OECD is still confident of a soft landing despite widespread fears of an abrupt decline in growth. The organisation believes that, on the whole, global financial conditions are still favourable despite rising volatility.
  
  
• Crude oil prices declined this week on sustained worries that lower global growth would affect energy demand this year. The OPEC decision to leave production quotas of member countries unchanged did not have much impact on prices. Near month NYMEX futures lost around $3 per barrel over the week to settle at $57.11 per barrel on Friday.
  
  
• OPEC has hiked the average 2007 demand forecast for crude oil modestly to 85.5 million barrels per day on expectations of colder weather conditions. The oil cartel expects production by non-members to rise this year and admitted that downside risks to oil prices because of lower global growth have increased. The demand forecast by OPEC is lower than the last forecast by IEA at 86 million barrels per day. The IEA had also estimated that fuel stockpiles of major consuming countries would decline substantially during the current quarter because of colder weather. Lower stocks and the recently announced increase in US strategic reserves may support crude oil prices over the next few months
  

*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.