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Nifty, Sensex extremely overbought: Weekly Market Report

The market is headed higher as long as its does not close below any previous day’s low

 
The Indian market logged gains for the fifth week in a row, this time on a sharp fall in the headline inflation numbers for April, raising hopes of a rate cut by the Reserve Bank of India (RBI) next month. S&P’s threat of a downgrade in India’s sovereign rating to junk grade if the government fails to pursue reforms and check deterioration in fiscal and current account deficits saw the key benchmarks narrowing their gains on Friday. 
 
With the earnings season almost coming to an end—State Bank of India, Tata Steel, Jet Airways and Coal India will declare their results in the coming week—investors will focus on global cues and inflows from overseas investors for direction.
 
The Sensex closed 204 points (1.01%) up at 20,286 and the Nifty finished the week at 6,187, a rise of 93 points (1.52%). The market closed in the negative on Monday, but was in the positive for the rest of the week with gains diminishing towards the end of the week. The market is headed higher as long as its does not close below any previous day’s low.
 
Across-the-board selling in fast moving consumer goods, metal and capital goods sectors saw the market declining over 2% on Monday. The market closed with marginal gains on Tuesday amid a high degree of volatility even at the country’s headline inflation for April came in at a three-and-half year low of 4.89%. 
 
The benchmarks closed at their highest levels since January 2011 on Wednesday after the RBI governor a day earlier rekindled hopes of a cut in interest rates going ahead, on the decline in headline inflation. The indices ended with minor gains on Thursday on profit taking and weak cues from Europe. On Friday, a recovery in late trade with support from power, capital goods and realty stocks helped the market recover from its lows and close marginally higher.
 
BSE Realty (up 6%) and BSE Healthcare (up 5%) were the key sectoral gainers in the week while BSE Fast Moving Consumer Goods (down 3%) and BSE IT (down 2%) were the main losers.
 
The top Sensex gainers were Cipla (up 7%), State Bank of India (up 6%), ICICI Bank (up 5%); ONGC and Hindalco Industries (up 4% each). The decliners were led by ITC (down 5%), Wipro, Bharti Airtel (down 3% each), Tata Steel and TCS (down 2% each).
 
The Nifty toppers were Jaiprakash Industries, Kotak Mahindra Bank (up 9% each), Lupin, Punjab National Bank (up 8% each) and Cipla (up 7%). HCL Technologies (down 7%), ITC (down 5%), NMDC (down 4%), Bharti Airtel (down 3%) and Tata Steel (down 2%) settled at the bottom of the index.
 
Global ratings agency Standard & Poor's (S&P) on Friday cautioned that it may downgrade India’s sovereign rating to junk grade if the government fails to pursue reforms and check deterioration in fiscal and current account deficits. While retaining India’s sovereign rating at “BBB-” with a negative outlook, S&P said there is at least a one-in-three likelihood of a downgrade within the next 12 months.
 
Headline inflation to nearly a three-and-a-half-year low of 4.89% in April, marking it as lowest level of inflation since November 2009 when it was 4.78%. Inflation based on the Wholesale Price Index (WPI) stood at 5.96% in March. In April 2012, it was 7.50%. RBI governor D Subbarao remarked that he would take note of the fall in the inflation rate for future policy decisions.
 
Retail inflation fell for the second straight month in April, declining to 9.39%, due to easing of prices of vegetables, edible oil and protein-based items. The Consumer Price Index (CPI) based inflation stood at 10.39% in March.
 
India’s exports grew by 1.6% to $24.16 billion in April this year compared to $23.7 million in April 2012. On the other hand, imports increased by 10.9% to $41.95 billion in the reporting month from $37.8 billion in the year-ago period leading to a trade deficit of $17.8 billion.
 
In the corporate space, ITC, a leading conglomerate and fast moving consumer goods company, posted a net turnover at Rs8180.30 crore for the quarter ended March 2013 registering a growth of 19.2%, primarily driven by a strong growth in the non-cigarette FMCG segment. Post-tax profit for the same period stood at Rs1927.98 crore, which grew at an impressive rate of 19.4% over the corresponding period last year.
 
In international news, the debate about whether and when the Federal Reserve should begin cutting its bond-buying program weighed on the US markets this week. Philadelphia Fed President Charles Plosser, who does not vote on policy, said the Fed should start cutting back on its bond purchases in June, and San Francisco Fed President John Williams said the Fed could start winding down this summer, if employment continues to improve.
 
However, JPMorgan said the Fed could begin discussing tapering in June, and carry it out at the end of the year, while Goldman Sachs expects it to be discussed in December, and then implemented early next year.

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