Markets end event-filled week on a flat note

Markets traded in a tight range for the most part of the week due to lack of directional cues and volatile commodity markets, but rebounded sharply on Friday as results of Assembly elections were in favour  of the Congress.

The Nifty commenced the week on a soft note taking cues from sharp swings in crude prices and weakness in the global markets. The Nifty continued to trade on a lacklustre note through the week, shrugging off higher than expected IIP data as it fuelled concerns of further tightening. Markets rallied over 1% on Friday as state polls showed that the coalition won majority in three out of five states. The Nifty advanced 59 points at 5,545 and the Sensex surged 196 points, at 18,531. Both the benchmark indices ended on a flat note.

The coalition lost Tamil Nadu to AIADMK as voters punished Congress ally DMK (Dravida Munnetra Kazhagam) for its involvement in the telecom scandal which cost the exchequer Rs 39,000 crore. But the markets cheered Mamata Banerjee’s victory in West Bengal, ousting the three decade-Communist rule. The coalition also strengthened its base in Assam and Kerala. Analysts said reforms, which were stalled, may move ahead with the Congress winning the majority. Motilal Oswal, Chairman and Managing Director of Motilal Oswal Financial Services said, “ We think it would strengthen the ruling coalition and would provide stability at the centre as after a long time the congress got a big booster. The market is oversold and hence we feel it would look up in the short term.”

Industrial output data for March was reported at 7.3%, much stronger than 3.7% seen in February as manufacturing output improved. However, it raised expectations that the Reserve Bank of India will continue to hike interest rates to tame inflation. Weekly inflation also continued to hover around 8%.

Brent crude moved in the range of $112-$115/bbl, and ended the week at $113$/bbl as the dollar strengthened, and debt problems in the Eurozone weighed.  Mr. Sanjeev Zarbade, Vice President (Private Client Group Research) from Kotak Securities said, “If commodity prices continue to soften next week, then Indian markets may react positively.”

Next week, investors will keep a close eye on Larsen & Tourbo and Baja Auto which are expected to report their fourth quarter results. Also, Zarbade said, “As we approach June, the focus of the markets would shift to monsoons. A normal monsoon is very critical for Indian economy which is battling high food inflation.”

Among the sectoral indices BSE FMCG index was the top gainer for the week, up 4.4% as focus shifted to consumption driven theme which may anchor the next leg of rally.  Hindustan Unilever rallied 12% as fourth quarter results beat expectations led by robust sales growth, United Breweries also gained 12% and Marico was up 6.5%.

BSE Bankex was the top loser, down 0.6% as rising interest rates may put pressure on credit demand affecting banks margins. Bank of India was the top loser, down 6%, Kotak Mahindra dipped 2.4% and HDFC Bank lost 1.9%.

BSE Capital Goods index slipped 0.6%. Analysts said capital expansion cycle may take a back seat in a rising rate scenario. BHEL was off 4%, ABB plummeted 3.1% and Alstom Projects declined 2.3%.

The BSE Mid-cap and Small-cap indices were up 0.5% and 0.3% each. From the mid-cap space, Shree Global jumped 16%, SKS Microfinance advanced 16% after its management predicted a consolidation in the microfinance Industry after couple of quarters and said they would start focusing on gold loan financing. Essar Shipping rose 14.2%. In the small-cap sector, Genesys International rallied 24%, Shree Ganesh Jewellers firmed up 21% and Jindal Cotex gained 18%.