Weekly stock markets review 15th - 19th Sept.

As the world prepared itself for the Big Bang Theory experiment (designed to re-create what happened immediately after the Original Big Bang), the Indian markets commenced the week gone by with a Big Bang of a different kind following the NSG waiver. Further, helping the bulls was the bailout of all the bond holders of Fannie Mae and Freddie Mac by the US Government as market participants perceived this bailout to be indicator of housing led turmoil in the US and global credit markets nearing its end.

Resultantly, the benchmark Indian indices registered gains of 3% each on the first trading day of the week. However, the euphoria was short-lived as concerns over the falling rupee and future loss estimates of Lehman Brothers (the stock lost 55 % of its value in three days and reported third quarter net loss of USD 3.9 billion) led to sharp losses during the mid-week.

Aggravating concerns was India's core infrastructure industries recording sluggish growth of 3.7% during April-July 2008 as compared to 6.6% registered during the corresponding period last year.

Of the major stocks, India’s largest private sector company interms of market capitalization, Reliance Industries dipped to its new 52 week low on the last trading day of the week. Selling pressure was also seen in banking and realty stocks during the week gone by.

Thus, lower inflation figures, falling crude prices and better than expected IIP numbers too failed to provide respite from the overall selling pressure.

For now, though India has achieved an important breakthrough on nuclear trade, the nuclear deal still needs to be ratified by the US Congress before it kicks in. Notably, the US Congress must act before adjourning in late September 2008 for US presidential elections as, in case of any delay the deal could be left to an uncertain fate under a new US administration which would take office next year.

Even though inflation seems to be cooling off, sharp depreciation in the Indian Rupee which has now breached the crucial and psychological level of Rs 45 per dollar mark for the first time in 21 months may fuel inflation which presently remains above RBI’s stated tolerance level. Sharp appreciation of the dollar against most of the currencies can be attributed to the recent bail-out of Fannie Mae and Freddie Mac while the depreciation in the domestic currency was also due to a sharp sell off by the FII’s (net sellers to the tune of Rs 30,000 crore in 2008 and major selling witnessed in the past three months).

Nevertheless, the fall in crude prices alongside a depreciating rupee has given some respite in the near term.

However, with declining crude, prices aviation stocks and oil marketing companies could witness some buying interest in the coming week. Better than expected IIP numbers could also lead to some short covering in the capital goods space.

On the global economic front, in the Federal Reserve policy meeting is to be held on Tuesday and the Central bank is expected to hold rates steady at 2%. However, it may commence lowering rates by the end of the year due to the continued economic slowdown. Any such indication can provide a boost to markets across the globe.

It seems evident that there is little conviction amongst market participants against the backdrop of uncertainty. Nevertheless, there is an underlying hope that the worst may now be over and market sell-offs could provide decent investment opportunities for medium to long term investors. However, in the week ahead, signs of recovery could be followed by profit booking making it necessary for traders to be nimble-footed.