Markets trying to stabilise after correction

Rex Mathew
27 August 2005

Markets opened the week on a relatively firm note on Monday morning, trying to recover from the decline over the last two days of the previous week. It proved to be a false start as the indices gave up by afternoon and set the tone for much of the week.

The indices saw one of the worst falls in recent months on Tuesday as traders rushed to cover their long positions ahead of the derivatives expiry on Thursday. The fall was triggered by reports of negative FII flows on the last day of the previous week and gained momentum as the session progressed. Both the Sensex and Nifty lost close to two per cent each.

The markets tried to consolidate on Wednesday as the indices turned highly volatile in search of a direction. Massive short covering in the closing hours helped the frontline indices to close with gains on Thursday, the closing day for August series of derivatives. The indices recovered some lost ground on Friday, helped by technology, cement and select oil stocks.

The Sensex lost close to 100 points and the Nifty lost 26 points or over a per cent each over the week.

Mid-caps more or less tracked the movements in frontline stocks for the first 3 days of the trading week. On Tuesday, losses in the smaller stocks were much more than index stocks. The recovery in mid-caps on the last two days of the week was equally dramatic with the index gaining well over 3 per cent in those two days. The CNX Mid-Cap 100 index lost 22 points during the week or over half a per cent, a much better performance than the frontline stocks.

Domestic economic and regulatory action

• After three months of scorching growth, infrastructure growth dipped dramatically to 0.5 per cent for the month of July from over 11 per cent a year ago and 10.4 per cent during June 2005. The major culprit was a sharp 4 per cent decline in crude oil output. Electricity generation and coal production also declined during the month. The sub par performance has brought down the infrastructure growth rate for the first 4 months of the current year to 4.2 per cent from close to 9 per cent during the previous year.

  Economy watchers and analysts were quite bullish about the growth outlook for the current year after the strong growth reported by industry during the first quarter. The deceleration in infrastructure, which accounts for more than one fourth of industrial output, is bound to affect the overall growth rate for July.