The Hindu : Business : Inflation, oil news upset sentiment

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Monday, Aug 09, 2004

Business

Business

Inflation, oil news upset sentiment

SOARING INTERNATIONAL oil prices and rising domestic inflation kept the bourses under check in the closing sessions last week. Equities witnessed value-based buying support and the benchmark finished with a six week winning streak. Buoyed by revival of the monsoon in most parts of the country, operators and retail investors went on a buying spree but the fresh spurt in international crude oil prices and a sharp rise in inflation rate for the latest reporting week turned them cautious and they preferred to book profit at the higher levels. Response to the Tata Consultancy Services IPO had a positive impact on bourses earlier in the week when there was an across-the-board sharp rally.

Crude oil price hit an all-time high of $44.77 a barrel for September delivery in Asian trade on Friday at the NYMEX due to acute global supply constraints. Market indices tumbled on the release of inflation data, which indicated that annual inflation, based on the wholesale prices index, jumped to 7.51 per cent during the week ended July 24 from 6.52 per cent in the earlier week. The steep rise in inflation rate was a major concern for the bourses.

Foreign funds reportedly picked up shares worth Rs. 268 crores in the first four days of the week while mutual funds sold shares worth Rs. 107 crores in the same period.

The BSE-30 share sensitive index opened higher at 5193.25 from the previous weekend close of 5170.32 and forged ahead to a high of 5262.89 before closing the week at 5196.99, a net rise of 26.67 points. The broadbased BSE-100 index firmed up by 18.03 points to end the week at 2773.25.

During the week, cement, steel and sugars were in the limelight. Refinery and auto shares reacted marginally on profit booking. Cement stocks continued their upward march on sustained institutional buying. The rally in these counters could be attributed to the fact that cement majors have reported a surge in dispatches for July 2004.

Sugar counters witnessed good buying on reports of firming sugar prices. In view of the poor kharif crop, sugar companies with decent inventories, will enjoy higher realisations as is the case now, all of which gets to their bottomline.

Index heavyweight, Reliance moved up on reports that the company has found more gas in its Andhra and Orissa offshore fields. The stock of FMCG major, Hindustan Lever, was under selling pressure and touched a seven year low of Rs. 112 following a disappointing quarterly performance.

Other index-based stocks such as Grasim, GACL, ACC, Bajaj Auto, BHEL, Dr. Reddys', Hero Honda, HPCL, ICICI Bank, ITC, Satyam Computer, Wipro and Tisco showed sharp gains at close.

On the National Stock Exchange, the S&P CNX Nifty inched up by 1.10 points to 1632.30.

Technology stocks such as Infosys, Satyam and Wipro shed a substantial part of earlier gains on profit booking.

Among auto stocks, M&M, Tata Motors and Maruti displayed weak trends. Poor rainfall in June and now rising crude and product prices and inflation are hurting the sector.

Media stocks shot into the limelight. Crest Communications, Padmalaya Telefilms, Balaji Telefilms and Mukta Arts gained on keen buying interest.

Select pharma stocks displayed weakness. Ranbaxy Labs was subdued after the World Health Organization removed three generic medicines against HIV/AIDS made by Ranbaxy from its list of recommended drugs on Wednesday, due to concerns about quality.

In stock specific activity, BHEL was in demand. The company has recommended a 60 per cent dividend (including interim dividend of 30 per cent already paid) for 2003-04. Tata Telecom firmed after the company's board on Wednesday approved the acquisition of Tata group's 25.1 per cent stake by Avaya and also the change in the company's name to Avaya GlobalConnect.

Rupee looks up

Overcoming severe early pressures caused by soaring global oil prices and flaring inflation rates, the rupee posted sharp gains towards the close of the week against the U.S. currency on the back of healthy trade inflows and partly due to dollar-sales by public sector banks, possibly on behalf of the central bank.

The rupee ended at 46.36/37 a dollar, sharply higher from the previous weekend finish of 46.43/45 a dollar.

Already reeling under tremendous pressure, due to surging global oil prices which spurred dollar demand from large oil corporates, the rupee succumbed during the week to the heightened inflation news, as nervous operators scrambled to cover dollar positions and drove it sharply down to 46.48/51.

However, fresh exporter dollar sales led to unwinding of long dollar positions by banks that helped the rupee to make a strong turnaround. Dollar sales by nationalised banks, possibly on behalf of the Reserve Bank of India also helped the sharp rupee rally.

Interest rates further up

The interest rates have moved up further on the back of steep increase in the inflation. The year-on-year inflation rate has moved up to 7.51 per cent for the week ended 24th July.

The ten-year government security was traded at 6.28 per cent and the five year security at 5.98 per cent.

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Inflation, oil news upset sentiment