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The Psychology of Economics

Building a new economic theory based on behavioural economics won’t be easy

After the crash of...

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Weekly Market Report: Bubble building up

The market ended with splendid gains in the week ended 1st October on positive economic triggers and across-the-board buying support by institutional investors.

The market opened strong on positive global cues on 27th September, the first trading day of the week, but gradually drifted lower and settled with meagre gains. It closed flat with a negative bias on Tuesday amid choppy trading. Huge selling pressure resulted in the indices closing below their psychological levels on Wednesday. The decline was led by Sterlite Industries, which lost over 8% after the Madras High Court ordered the closure of its Tuticorin plant on environmental issues.

The market bounced back in the dying moments on Thursday helping the benchmarks regain their crucial levels. Earlier in the day, the market touched its intraday low on reports of a rise in the weekly inflation numbers. It started the new month on a roll with the key barometers touching a 33-month high in intraday trade.
 
On a weekly basis, the indices clocked gains of 2% with the Sensex surging 399.86 points and the Nifty added 125.10 points.

The top Sensex gainers during the week were Hindalco Industries (up 7%), Tata Steel, DLF, Jindal Steel & Power (JSP) and BHEL (up 6% each.). The top losers were Oil and Natural Gas Corporation (ONGC), Hindustan Unilever (HUL) (down 2% each), ACC, Hero Honda and Reliance Communications (RCom) (down 1% each).

All sectoral indices ended in the positive territory this week. BSE Metal and BSE Realty gained 5% each while BSE Oil & Gas and BSE Fast Moving Consumer Goods (FMGC) were on the bottom of the list, ending flat.

Meanwhile, during the month of September, the Sensex gained 1,863.25 points (10%) to end the month at 20,009. The bellwether index touched a high of 20,267 and a low of 18,027. The Nifty raked in gains of 10% or 558.10 points last month settling at 6,029 on 30th September. The index touched a high of 6,073 and a low of 5,403 during the month.

Food inflation increased to 16.44% in the week ended 18th September, climbing 0.98 percentage points from 15.46% in the previous week. The rise in food inflation was due to a rise the cost of cereals, fruits, select vegetables and milk on account of supply disruptions due to heavy rains and floods.

This was the fifth consecutive week in which the rate of food prices has risen, after a spell of moderation in July and the first half of August.

The country's exports grew by 22.5% to $16.64 billion in August compared to the same period last fiscal. Imports, too, jumped by 32.2% year-on-year to $29.67 billion in August, according to the government data released this week.

During April-August this fiscal, exports posted a growth rate of 28.6% to $85.27 billion on a year-on-year basis. Imports during the same period grew by 33.1% to $141.89 billion.

Manufacturing activity in the country expanded at its slowest pace in 10 months in September, as per the Purchasing Managers' Index (PMI) data released on Friday.

The HSBC Markit PMI, based on a survey of 500 companies, slid to 55.1 in September, compared to 57.2 a month ago. This is the second month in a row that PMI has fallen. A reading above 50 indicates expansion in manufacturing activity.

The Asian Development Bank (ADB) earlier this week raised India's growth forecast for the current fiscal to 8.5% from 8.2% but expressed concern over persistent high inflation and the rising value of rupee, which could undermine future economic expansion.

The multilateral lending agency had projected a growth rate of 8.2% for 2010-11 in April. For the next financial year (2011-12), ADB has retained its earlier projection of 8.7%.

Two amendments moved by a US senator on restricted hiring of foreign workers and another aimed at preventing fraud and abuse of H-1B and L1 visas could not pass the Senate floor as they were blocked by the Democratic Party.

The two amendments moved along with the Creating American Jobs and End Offshoring Act, were blocked by the Democratic Party, senator Chuck Grassley, its author said earlier this week.

His first amendment would have prevented any company engaged in a mass lay-off of American workers from importing cheaper labour from abroad through temporary guest worker programs.

The second would have taken aim at fraud and abuse of the H-1B and L Visa programs, while making sure Americans have the first chance at high-skilled jobs in the United States.

Both amendments were being blocked by the Democratic Senate Majority Leader, the senator said in a statement.

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COMMENTS

ErSS Hari

7 years ago

There is no sign of bubble being reflected in VIX values rather it is coming down with market climbing up.Neither PCR values are indicating worry bubble formation.Initial bubble formation is healthy sign as any small correction leads to short covering.It will be interesting if some timing details are given when it is likely to burst. Bubble formation is visible this remark is not of much use to traders though it is good hint for investors.

Shantilal Hajeri

7 years ago

The DLF was available for 300 about a month back. Now the price has sky rocketed to 390. In real estate business the land and the building are the assets of DLF. nothing substantial happens tothe prices of land and building in short term. Even then the price has increased by 25% in just one month. I do not under stand why the people who did not buy at when it was available at Rs.300 are now buying it at such a high price. I feel some forces deliberately do something to increase or decrease the prices of stocks.

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