Market optimistic ahead of results

Rex Mathew
02 April 2005

It was an action packed week for the market, which started a new financial year on Friday. The futures and options settlement on Thursday and the usual year end activities kept the market volatile. The indices managed a relief rally on Monday after the huge losses of the earlier week only to crash again on Tuesday. After stabilizing on Wednesday, the indices pulled ahead with strong gains on Thursday and Friday. Both Nifty and Sensex gained more than two percent each for the week. Mid-caps ran much ahead of the frontline stocks with the mid-cap index gaining more than five percent.

US markets lost ground on the last two days of the week after posting spectacular gains on Wednesday. The decline on Friday was also because of a sell off in financial sector stocks following reports of investigations into insurance major AIG's accounting practices. Even investment legend Warren Buffet is under a cloud because of his company's insurance deals with AIG. Tuesday was a very bad day for Asian markets and many of them ended with substantial losses. The downtrend in Japanese employment data and worries about rising global interest rates led to a sell off in most markets.

After showing signs of cooling off in the early part of the week, crude oil rose sharply on Friday to touch an all time high of $57.7 to a barrel. A highly alarmist report from Goldman Sachs, who also happens to be the largest trader in crude oil futures, predicting a sharp increase in oil prices was the main trigger. The US investment bank believes that oil is entering a super-spike period and may even touch $105 to a barrel. Last week's explosion in a US oil refinery and the temporary shut down of a major refinery in Venezuela added to worries about sufficient gasoline stocks.

India's GDP growth for the third quarter slowed down to 6.2 percent as compared to 11 percent for the same quarter last year. The slow down was expected as last year's growth was aided by a massive eighteen percent growth in agriculture, which understandably has slowed down this year. The growth for the nine-month period Apr '04-Dec '04 is estimated at 6.7 percent as against 8.6 percent for the same period last year. Going by this trend it would be difficult to achieve the 6.9 percent growth projected for the full year. To achieve this, the economy has to grow well over seven percent in the last quarter and the numbers for February were not very encouraging.

However, there are some silver linings in the form double-digit growth in the manufacturing sector and higher growth rates for the construction and service sectors. Non-oil imports are showing no signs of a decline indicating the sustained momentum in manufacturing. The construction sector also posted good growth at eight percent, which may cool down as input prices are spiraling. Among services, transport and communication posted an impressive 10.5 percent growth followed by financial services at 8.1 percent.

Inflation for the week ended 19 March fell marginally to 5.11 percent from previous week's 5.23 percent. The drop was on account of a decline in prices of some primary articles even as manufactured products and metals continue to see higher prices. The March year-end inflation may remain at around the target of five percent as oil price hikes have been postponed and major increases in metal prices were effected from 1 April. Expect a sharp up turn in inflation during the month of April.