INDIAN STOCK MARKET REVIEW: 25TH AUG 2008

GLOBAL CUES TO SET THE MARKET TREND
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Weak global cues kept the market under pressure and the Indian equities closed lower for the second consecutive week. A 16-year high inflation, sudden spurt in crude oil prices above US$121/ bbl and sluggish trend across global markets kept the bulls on the sidelines. Shares in the interest rate sensitive sectors like banking, real estate and automobile witnessed selling pressure the most. The barometer index BSE Sensex declined 322.69 points or 2.19% to 14,401.49 in the week ended Friday, 22 August 2008. The S&P CNX Nifty lost 103.25 points or 2.33% at 4327.45 in the week.

Selling continued across the interest-rate sensitive sectors like real estate, bank and auto, as fresh fears emerged over a possible rate hike after inflation surged to 12.63%. The wholesale price index rose 12.63% in 12 months to 9 August 2008, above the previous week's annual rise of 12.44%. With rising inflation and possible revision in interest rates leads to fears of a slowdown in the local economy which dragged the capital goods stocks down. Power and IT stocks were the other major casualties while pharma stocks provided some cushion. Action was seen in fertilizers stocks after the finance ministry approved a cash payment of Rs220bn as subsidy for fertilizer companies.

In the coming week the market may remain under pressure after inflation recorded fastest rise in more than 16 years in early August 2008, increasing the likelihood of the Reserve Bank of India (RBI) raising interest rates again. With no major key events scheduled in the forthcoming week, the market will closely watch global stock market cues. But it may turn volatile on account of expiry of August 2008 derivatives contracts on Thursday, 28 August 2008.

Market will also closely watch developments on the Indo-US nuclear deal. A two-day meeting of the 45 countries of the Nuclear Suppliers Group (NSG) began in Vienna on Thursday, 21 August 2008. A green signal by the NSG is required for the deal to proceed to the US Congress for final ratification.

But above all how oil behaves over the next few weeks will be something which is going to affect the market in a critical way. If oil prices tend to move up again, we will get those same old fears of inflation. We will again have worries of interest rate increase, which could be much sharper than expected.

Technical View: One should now be watching 14950 and 15800 as a trigger. A rising wedge formation as shown if broken has always resulted into dips /cracks on the index. Technically supports are placed at 13700/14050. Till markets don’t give a close below 13700 it could remain in a tight range with an upside cap around 15500-15800 for some time.