The Hindu : Business : Bourses witness volatile trade

Online edition of India's National Newspaper
Monday, Nov 01, 2004

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Business

Bourses witness volatile trade

ALTHOUGH THE stock market ended with a marginal gain, stocks of all sectors witnessed intra day volatility throughout last week. The Sensex shed 60 points on Monday on rising international oil prices. The next day gains in blue chips lifted the index by 70 points after the Reserve Bank of India (RBI) left the bank rate unchanged. The sharp fall in international oil prices and shortcovering towards the expiry of the October series futures lifted the Sensex by nearly 65 points in the next two sessions. However, on Friday fresh selling was witnessed following China's decision to hike domestic interest rates and the Sensex was down by 43 points. International oil prices tumbled for a second straight day on Thursday and the U.S. light crude for December delivery closed lower by $1.54 to $50.92 a barrel on the New York Mercantile Exchange, the lowest in two weeks, after falling $2.71 on Wednesday.

The Friday fall was due to worries about a slowdown in demand from China after the Chinese central bank increased the one-year lending rate by 27 basis points to 5.58 per cent.

The 30-share BSE Sensitive index ended with a gain of 31.21 points at 5,672.27, after touching an intra-week high of 5,731.75 on Thursday.

On the National Stock Exchange, the S & P CNX Nifty index gained 7.15 points to end at 1,786.90

Stocks of private sector banks rose on Friday after the Finance Minister's observation that foreign banks may acquire 30-40 per cent stake in private sector banks as they would be allowed to pick up 10 per cent stake every year in these banks.

Earlier, announcing its mid-term review of the Monetary Policy on Tuesday, the RBI kept the bank rate unchanged at 6 per cent while raising the benchmark repo rate by 25 basis points to 4.75 per cent, citing concerns about a rise in inflation. (Repo rate is seen as the benchmark for short term and money market interest rates).

It its review, the RBI lowered the GDP forecast for the current year to 6-6.5 per cent revising a previous forecast of 6.5-7 per cent growth. The central bank also raised its inflation estimate for the year by 1.5 percentage points to 6.5 per cent.

Foreign funds remained net buyers, bringing in Rs. 1,155.80 crores in the first four sessions of the week. A number of new small and mid-sized hedge funds have been active in the Indian markets.

Further flow of corporate results showed a mixed performance. Among the results announced during the week, Tata Steel came out with strong numbers with a 131 per cent rise in net profit in the second quarter. Steel Authority of India reported a three-fold jump in net profit. While Reliance Industries reported 38.7 per cent rise in its net profit, Hindustan Aluminium of the Aditya Birla Group showed a modest 9.92 per cent rise in its net profit. Dr Reddy's Labs disappointed with a 63 per cent fall in its net profit.

Hindustan Lever reported a 26.8 per cent fall in third quarter net profit. The coming week is crucial for the market as some key international developments including the presidential elections in the U.S. will have a significant impact on bourses.

Rupee surges

Buoyed by sustained robust trade and foreign portfolio investment inflows, the rupee spurted to a 4-1/2-month closing peak of 45.39/40 a dollar on Friday in an upbeat interbank foreign exchange market during the week, helped partly by a lingering weak dollar overseas and sliding oil prices.

Surging by 34 paise from the previous weekend close of 45.73/74, the rupee's next target would be 45.34/35 a dollar logged at the close of trade on June 14, a forex dealer said. Persistent strong dollar supplies from foreign funds and other trade avenues outstripped the limited demand from the anticipated month-end pressures, dealers said.

A substantial drop in crude oil prices and the dollar's global weakness, coupled with China hiking its interest rates, also boosted market sentiment, they added. Dollar inflows on account of the subscription to the initial public offer of the National Thermal Power Corporation by foreign institutional investors was the main reason for the rupee surge, bankers said.

Interest rates higher

Interest rates ended higher as compared to the previous week. The ten-year government security was traded at 6.86 per cent and the five-year security at 6.33 per cent. The year on year inflation was unchanged at 7.10 per cent for the week ended October 16.

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