INDIAN STOCK MARKET WEEKLY REVIEW

WEEKLY UPDATE: 18th AUGUST 2008 - 22nd AUGUST 2008
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Market lost the steam after a five day rally to edge lower in truncated week due to poor industrial growth, fall in car sales after 33-months and rebound in crude oil prices from a 3-month low. The sentiment turned bearish after the Prime Minister’s Economic Advisory Committee (EAC) trimmed its forecast for GDP growth in FY09 to 7.7%. It also expects inflation to shoot up to 13% shortly before it softens. The BSE Sensex and the S&P CNX Nifty settled below their psychologically important levels of 15,000 and 4,500 respectively. The barometer index BSE Sensex declined 443.64 points or 2.92% to 14,724.18 in the week ended Thursday, 14 August 2008. The S&P CNX Nifty lost 98.80 points or 2.18% at 4,430.70 in the week.

Interest-rate sensitive sectors bore the brunt of the selling after EAC indicated a slowdown in GDP growth and its expectations of higher inflation. Also, concerns about shrinking economic growth in key global economies and continued financial sector woes had an adverse impact on the sentiment. Slowdown in industrial production hit the capital goods stocks. Metal and power stocks were the other major losers. IT stocks bucked the negative trend to close higher after the Rupee depreciated to 42.90 against the US Dollar.

Inflation had hit 12.44% and remains a major concern for the central bank. High inflation will mean that tight monetary policy stance by the central bank may continue. On 29 July 2008, the Reserve Bank of India (RBI), at its quarterly policy review late month raised repo rate by 50 basis points to a seven-year high of 9% to curb inflation and dampen inflationary expectations. RBI also raised the cash reserve ratio (CRR), the proportion of funds that banks must keep on deposit with it, by 25 basis points to 9%. And this relentless monetary tightening by the RBI has finally started to catch up with industrial growth. A slowdown in the manufacturing sector pulled down India's industrial growth in June 2008 to 5.4% from 8.9% a year ago. This is however higher than 4.1% growth as per revised figures in May 2008. The index of industrial production (IIP) went up 5.2% in Q1 June 2008 compared to 10.3% in Q1 June 2007.

In the coming week, sentiment is likely to remain edgy in the near term dampened by a series of negative news. Car sales recorded a dip in sales for the first time in 33 months as interest rates, inflationary pressures and hike in fuel prices dented demand. Passenger car sales declined 1.7% to 87,724 units in July 2008 over July 2007, according to data released by the Society of Indian Automobile Manufacturers. With no key events scheduled in the forthcoming week, the Indian stock market will closely watch global stock markets for direction. However, on the positive side, a further fall in crude oil prices may boost the sentiment. Crude oil prices have declined sharply from record high $147.27 a barrel hit on 11 July 2008. US crude settled below $114 on Friday, 15 August 2008 due to stronger US dollar.

From 21st August, NSE will introduce 39 new stocks to the F&O segment. They are ABG Shipyard, Akruti City, Asian Paints, Balaji Telefilms, Concor, Core Projects, Deccan Chronicle, Dish TV, Everonn, Firstsource, GSPL, GTL Infrastructures, HCL Infosystems, Indiabulls Real Estate, ICSA, KLG Systel, KS Oils, MIC Electronics, Mindtree Consulting, Mercator Lines, Monnet Ispat, MRF, Nava Bharat Venturs, Noida Toll, Opto, Orbit Corp, Prism Cem, PTC, Reliance Ind Infra, Sintex, SREI, Thermax, Torrent Power, TV18, UCO Bk, UTV, Voltamp, Walchandnagar.

Marketmen will also watch the review of PN notes by SEBI. It is anticipated that SEBI may extend the period for unwinding PNs, on underlying derivatives from 18 months to 24 months.

Technical View: Sensex has given a weekly close below 15050 and broken the bearish Rising Wedge pattern. Therefore, it can test the previous low of 12500 again in the coming days as a measured objective of the Wedge. However, multiple support levels exist for Sensex at the region 14400-14600. below that 14000-14050 and 13650-13700 are the levels to watch. For Nifty, 4370-4390 may provide a bit of cushion below that levels are 4320/ 4220/4150/4120.

From the F&O perspective, only Nifty 3900 put saw any significant buildup. On the other hand, 4500 and 4600 calls have been written a lot. So it looks like that market participants are far more interested to write calls as if they are expecting a level of 3900 in this expiry itself.

VIX has taken support and bouncing back to higher levels means markets are going to be choppy and volatile.