Weekly Review: Market slip 2%, rate sensitives weigh

Markets declined 2% this week to 19-month lows as selling continued by foreign institutional investors over concerns that high inflation may prompt further tightening.

The markets commenced the weak on a positive note, but the relief rally was short lived and selling resumed as concerns of global growth slowdown and high inflation weighed on investors mind. The Nifty touched a high of 4,965 mid-week, but pared gains ahead of Federal Reserve Chairman, Ben Bernanke’s speech on Friday. The Nifty touched a low 4,720 and finally closed at 4,747, down 92 points. The Sensex slipped below 16K and closed at 15,848, down 298 points. Both the benchmark indices declined 2%, clocking their fifth consecutive weekly loss.

 

Market participants reduced their positions ahead of the Federal Reserve speech in United States and political concerns locally. Sanjeev Zarbade, Vice President - Private Client Group Research from Kotak Securities said, “For the next week, Indian equities would take cues from the outcome of the Fed speech. The deadlock between the government and team Anna has also kept the markets nervous. Any resolution on the political front could come as a respite for the markets.” So far in August, the foreign institutional investors have sold over $2 billion in Indian equities.

On Friday, at central bankers meeting in Wyoming, US, Ben Bernanke hinted more support for the ailing economy, but did not divulge any details about the course of action. Bernanke said, “The recovery from the crisis has been much less robust than we had hoped,” and added that the central bank would consider what more it could do to fight the high unemployment.

Back in India, week on week inflation inched closer to double digits, at 9.8% for August 13, against 9.03% in the previous week.  On Thursday, Reserve Bank of India re-iterated its fight against inflation even at the cost of growth. SMC Research in the weekly newsletter said, “If the Fed decides to come up with another round of bond purchases, it may lead to further firming up of inflationary pressures leading to more interest rate hikes in India.”

Almost all the sectoral indices, barring BSE TecK index, ended in the negative zone. The loser's list was led by rate sensitives. BSE metal index dropped 5.2% to 11,145. Bankex and realty index shed 4-5% each.

However, BSE IT index managed to outperform the benchmark index as it ended with a marginal loss of 0.3% at 4,719.

Among the Sensex stocks, Coal India slumped 8.6% at Rs 360 on reports that labour unions of the company have demanded a 100% jump in employee salaries. However, on a brighter note, Coal India would be replacing Reliance Capital on the Nifty 50 from October 10, 2011.
Tata Steel dropped 8% followed by Jaiprakash Associates. The steel-maker slipped to its 52-week low of Rs 419 this week on concerns that the Euro Zone crisis may hit sales.

In the banking space, SBI and HDFC Bank dropped 5-7% each. Many of the banking stocks, including SBI, dropped to its lowest in 52 weeks on Friday. DLF, Maruti Suzuki and Cipla also dropped.

Among the auto stocks, Bajaj Auto gained 5% to Rs 1,503. Bharti Airtel added 4% to Rs 399 on adding 1.51 million mobile subscribers in July 2011, taking the total to 170.7 million. BHEL gained 3%, followed by TCS and Hindustan Unilever.