Markets done in by software sector outlook

Rex Mathew
16 April 2005

It was a week in which market fears about a lower guidance from Infosys came true. Investors had developed some doubts about the immediate future of technology companies last week itself. However, not many would have anticipated the severity of the fall with the indices losing more than three per cent each on a single day on Friday.

Global markets also lost substantial ground during the week as weakness spread from the US to right across Asia. US indices declined on four sessions out of five during the week to touch recent lows. Most Asian markets have lost close to 10 per cent from their recent highs as investors worry about rising interest rates, crude oil and slowing growth in major economies.

After last week's decline of close to 10 per cent from its all-time highs, crude oil continued to trend weaker this week as well. On Thursday, crude futures went below the $50-mark before recovering to close above $51. On Friday, prices declined further to settle at $50.49, a decline of more than 15 per cent from the peak two weeks before.

Inflation for the week ended April 2 rose to 5.26 per cent as against 5.05 per cent for the pervious week. The increase in the index was mostly on account of higher aviation fuel and naphtha prices. The prices of manufactured and food items also went up as non-food and edible oil prices declined. Economists believe the real inflation rate should be above 6 per cent and is kept low by the much delayed petroleum price hike.

Centre for Monitoring Indian Economy (CMIE) expects the Indian economy to grow by 6.6 per cent in FY 2005-06 on the back of better performance by agricultural sector which is expected to grow 3.1 per cent. Industry growth is expected to be 8.5 per cent while services sector growth is projected to be 7.5 per cent. Research agencies expect this year's monsoons to be above normal and will hit the Kerala coast on May 26.

The economic data for the month of February os disappointing to say the least. The 'index of industrial production' growth fell dramatically to 4.9 per cent from the 7.5 per cent posted for the pervious month and 8.3 per cent posted during February of last year. The fall in growth was mainly on account of a decline in mining, which had posted double digit growth during last year. A deceleration in February is worrying as it would be that much more difficult to recover the growth momentum on the face of rising input costs, especially oil prices.