Weekly Stock Market Review - Outlook.

>> Sunday, November 9, 2008

The markets commenced the last week on a strong note against the backdrop of RBI’s sudden cut in policy rates over the weekend which was further augmented by strong global cues. With alternate bouts of buying and selling being the order during the first half of the week, the sentiment was further boosted after reports that PSU bankers reached a consensus to cut interest rates on advances by 75 basis points, and on deposits by 50 bps. Resultantly, there was a sharp rally at the bourses.

However, the biggest event of the week remained the US Presidential election wherein Barack Obama, the Democrat nominee was elected as the 44th US President. However, hardly had the election dust settled that global investors again began despairing about the economy. The Bank of England surprised investors on Thursday, 6 November, by slashing its key rate by 1.5%, bringing borrowing costs down to the lowest since the 1950s.

Prevalent uncertainty, lack of fund buying coupled with weakness in the international markets and profit booking at higher levels finally led to a steep correction in the domestic market on the penultimate and previous day of the week.

Concerns on inflation, which again increased to 10.72% against the market expectation of a single digit rate too added to the selling pressure. Lastly, Reliance Industries posted its third worst fall in percentage terms on a single day during the week gone by following a slew of adverse news and unsubstantiated rumours about the company.

The recovery on the last trading day against the backdrop of favorable global cues however helped the market to end the week on a positive note.

Though the US Presidential election results attracted a lot of media attention, it failed to bolster investor sentiment across the globe, mired as it is in the ongoing financial crisis. Thus, despite a slew of measures taken by the Government and the RBI to arrest the stock market mayhem, the Indian markets remain vulnerable to yet another FII sell-off driven onslaught.

The foretaste of the economic slowdown was already witnessed in the subdued performance of Indian Inc. during the latest result season. Further, with major economies such as US, Europe and Japan already in a recessionary mode, it will be a while before the global economy gets back on track. Lowering of India’s growth forecast of by the International Monetary Fund (IMF) to 6.3% too signals tough times ahead for the Indian Inc.

The upcoming announcement of IIP numbers in India and the truncated week ahead could also add to the ongoing uncertainty and trigger increased volatility.

However on a positive note, the Indian Rupee is now showing signs of strengthening against the backdrop of ease in FII outflows and dollar sales by exporters. This coupled with the cooling of crude prices could have a positive impact on the inflation which still remains above the RBI tolerance level.

For now, with the Q2 results season now out of the way, there are concerns that Q3 may be even worse as the lag effect of the impact of inflationary pressures and interest rates that were raised mid-year could manifest themselves in the numbers. Thus, the market may remain lacklustre as selling at every sharp upmove would result into sharp downswings. The silver lining of course remains in the fact that there are again umpteen options for long term investors to fuel up their portfolios with.