Markets advanced 0.4% for the week as close to double digit inflation and hawkish stance by the Reserve Bank of India trimmed the weekly gains, which were buoyed by strong global cues.
The Sensex commenced the week on a subdued note, but positive global sentiment led by China agreeing to buy Italian bonds and the central banks of the world willing to provide liquidity in the dollar terms helped the benchmark index reclaim 17K and touch a high of 17,123 by the week end. However, 25 bps rate hike and expectations of further tightening in the near term, caused investors to book some profit ahead of the weekend. The Sensex closed below 17K, at 16,934, up 57 points and the Nifty ended at 5084, up 9 points. Both the indices were up 0.4% for the week.
The Reserve Bank of India hiked the policy rates by 25 bps, along the expected lines to contain stubbornly high inflation level, which is just a tad away from approaching the double digit mark. The Wholesale Price Index for the month of August advanced to 9.8%, highest in last 13 months. CRISIL Research in the monetary policy review said, “While we might be heading towards the end of the rate hike cycle, Friday's hike may not be the last one. The recent decline in the rupee, along with petrol price hike, by Rs 3 per litre will further stoke inflation.” CRISIL Research expects inflation to ease only around the second half of FY12.
The recent increase in petrol price is likely to inch up by headline inflation by 6-8 bps in September according to analysts. "With rupee depreciation, oil marketing companies under recoveries are expected to rise by around Rs 9,000 crore, " said SMC Research in their weekly note.
In the upcoming week, caution may prevail ahead of the United States housing market report and the Federal Reserve meeting. On the domestic front, markets will closely watch for any decisive policy action by the government. Analysts said that all the negatives are priced into the market and there may be a sideways consolidation in the run up to the earnings season.
Meanwhile, across the world, risk appetite for equities improved as central banks in the US and Europe planned to boost dollar liquidity which will help avert a funding crisis. In the US, the Nasdaq and Dow Jones Industrial average rallied 5.6% and 4% each for week. In Asia, The Nikkei Stock gained 1.4%, however the Shanghai Composite and Hang Seng indices declined 0.6% and 2.1% for the week.
A weakening rupee buoyed IT stocks in the week with the index jumping 3% to 5,102. Heavyweight, Infosys jumped 5.3% to Rs 2,393. The company is fast diversifying actively into fast-growing markets such as China. While the US and Europe markets are too big to ignore, Infosys, which competes bigger rival Tata Consultancy Services and smaller Wipro, is expanding in neighbouring China, planning to roughly triple its staff headcount to 10,000 in 2-3 years. Wipro and TCS were up 1% each at Rs 340 and Rs 1,029, respectively.
Commercial vehicle maker by sales Tata Motors was the top Sensex gainer last week. The company reported a 3% year-on-year growth in its global sales at 87,459 units during the month of August. The company has further bagged two awards for Jaguar and Land Rover (JLR) from Autoweek at the Frankfurt Motor Show. The stock surged 5.8% to Rs 162.
Oil & gas sector rose 1.5% to 8,749 after the state-run oil marketing firms hiked petrol prices by about 5% from Thursday night. The move can help to reduce the subsidy-sharing burden on stocks like ONGC which jumped 5% to Rs 275. Meanwhile, the government has decided to once again postpone the follow-on issue of ONGC. This is likely to have a significant impact on the government’s disinvestment target of Rs 40,000 crore. It had earlier planned to come out with the issue last year but a more friendly stock market and good performance of Coal India helped the government to meet the similar target last year.
Among other gainers, NTPC, DLF, Sterlite and HDFC Bank jumped 2-5% each. Maruti Suzuki ended flat at Rs 1,107 after labour unrest spread to other Suzuki factories from its Manesar plant.
Meanwhile, Larsen & Toubro shed 4.7% to Rs 1,609. Bharti Airtel slipped 3.6% to Rs 386. Metal stocks slipped. Tata Steel and Hindalco dropped 3% each.