Weekly Review: Markets climb 2.7%, eye on budget

Markets clocked their first weekly gain after three consecutive weeks of losses on anticipation of policies by the government in Budget 2011-12 and inflation easing to nine week low.

Markets extended the pull back rally which began last Friday for five straight sessions until Thursday as investors picked up bargain stocks. Nifty tested 5600 in the mid-morning session on Friday, but took a breather later on during the day due to profit booking.

Investors dumped Anil Dhirubhai Ambani Group (ADAG) shares on corporate governance issues. The Nifty fell 1.6%, snapping five days of gains (down 88 points) at 5459, and Sensex slipped 295 points, at 18,212.  For the week, both the benchmark indices were up 2.7%.

Food inflation eased to nine-week low at 11.05% year-on-year led by fall in prices of vegetables and increasing expectations of a sustained decline in inflation. Sharp drop in crude prices also boosted confidence among investors.

Earlier in the week, Prime Minister Manmohan Singh in a rare interview with TV editors pledged to fight corruption and said the government would press for reforms which lifted investor sentiment. Furthermore, the parliamentary deadlock may be over next week as the congress has conceded to the Opposition's demand for Joint Parliamentary Committee (JPC) probe to enable smooth functioning of the budget session.

Next week markets may remain choppy on account of expiry but sentiment remains upbeat on run up to the budget.

Shankar Sharma of First Global expects the pull-back rally to extend, at least till the Union Budget on February 28. “We have had one of the worst January on record, and there is enough headroom for the Sensex to rally by another 1,000-1,500 points in the coming days,” said Sharma.

“The Nifty may touch 5,700 before the Budget, as valuations are comfortable. There are also expectations that the Budget will be populist,” noted Deven Choksey, MD, K R Choksey Securities.

Markets are trading 15 times one-year forward price-to-earnings multiple with a growth rate of 15 per cent.  India Infoline in the weekly note said that there might be some reform-oriented moves in the Budget.

The stage is set for pre-budget rally as markets are down 11% so far this year and India is the worst performing market after Egypt as foreign institutional investors removed $1.65 billion from Indian equities on widening corruption probe.

This week Anil Ambani, Chairman of ADAG was questioned by CBI (Central Bureau of Investigation) on its alleged involvement via Swan telecom, the front company which received telecom license in 2008.  Reliance Communication slipped 4.1%, Reliance Infrastructure declined 3.4% and Reliance Power was off 0.9%.

Even Prashant Ruia of Essar Group was summoned by the CBI in relation to the spectrum allotment which has led to the loss of $39 billion to the government.

Investors cashed in on banking shares as they were available at bargain prices. Also hopes of improving credit demand and hike in lending rates helped lift the stocks. The BSE Bankex index was up 5% for the week. Yes Bank was the top gainer, up 10.5%, followed by Kotak Mahindra Bank, up 8.2% and Canara Bank, up 7.3%. Among the front liners State Bank of India advanced 6%, ICICI Bank was up 0.1% and Axis Bank climbed 5.8%.

Metal shares added sheen boosted by surge in prices on London Metal Exchange. The BSE Metal index climbed 4.1% and was one of the top sector gainers for the week. Jindal Steel rose 9.7%, followed by Jindal Saw, up 7.5% and Tata Steel, up 7.2%.

BSE Realty was the only sector which ended in red on concerns of hardening interest rate and rising realty prices; the index was down 2.2% this week.  DLF was the top loser, down 6%, Unitech fell 1.3% and Reliance Infrastructure slipped 1.6%

Top gainers on the Sensex were Jindal Steel, up 10%, Tata Steel advanced 7.2%, State Bank of India gained 6.6% and Bajaj Auto was up 6.3%. The major losers were DLF, down 6%, Reliance Communication, down 4.1%, ONGC, off 3.4% and Mahindra and Mahindra, down 2.6%.

Broader markets also ended positive. BSE midcap and small cap indices were up 4.1% and 2.9% each. Major gainers from the midcap space were STC India, up 32%, ARSS Infra Projects, up 28.2% and Bajaj Corporation, up 25%. From the small cap space MIC Electronics zoomed 38%, Tanla Solutions was up 30.2% and Ferro Alloys gained 28.4%.