On Friday, 14th May, the Sensex fell 317 points, closing well below 17,000. All the talk of bullishness around us leaves us with a feeling that the market is gradually trending up. This is similar to the situation from September last year. The Sensex closed at 17,127 on 30th September, despite a huge post-Budget rally and thousands of crore of institutional investments having poured in for months together.

That is worrying. If the market cannot stage a strong rally from here, we will face another down-leg—towards 16,000. Long-term investors may assume that this does not change anything. They are confident that the India growth story is in place, corporate performance will be good and the market’s overvaluation is gradually getting corrected. This may be true in a normal situation. However, we are not even sure whether we are in a normal situation.

The market was up 1% over the week supported by a huge rally on the first day of the week on concerted efforts of the Eurozone to help the weak nations to come out of the debt crisis. This was followed by a correction on Tuesday, which can be termed as factoring out the measures taken. While trading was range-bound for the next two days, it sharply plunged on the last trading day of the week on concerns that the measures taken by the Euro nations to curb the fiscal deficit would impact the economic growth of these nations.

Among the top gainers on the BSE Sensex during the week, auto majors Tata Motors and Mahindra & Mahindra (M&M) jumped 6% each, HDFC Bank surged 6%, while DLF and Reliance Infrastructure (Reliance Infra) gained 5% each.

The top losers on the benchmarks were Cipla and Bharti Airtel, down 8% each, Reliance Communications (RCom) was down 6%, while metal majors Sterlite Industries (India) and Tata Steel shed 2% each.

In the sectoral space on the BSE, realty and auto indices were the top gainers, advancing 4% each. On the other hand, capital goods and metals ended flat with a negative bias.

India’s sugar output is likely to rise to 24-25 million tonnes in 2010-11. Domestic consumption was about 22-23 million tonnes while production was only 18.5 million tonnes in 2009-10. 

The food price index rose 16.44% in the year to 1st May, above the prior week's annual rise of 16.04% on the rise of vegetable prices as a heat wave in the country damaged perishable foods, government data released on Thursday showed. The fuel price index stood at 12.33%, down from the previous week's annual rise of 12.69%, while the primary articles’ index was up 16.76%, compared with the previous week's reading of 13.93%.

The annual wholesale price index was 9.59% in April from a year earlier, which is lower than 9.9% in March’s data and 10% in February. 

The chief economic adviser suggested the Reserve Bank of India’s (RBI) intervention to counter the rupee’s appreciation against the dollar. The rupee’s rise against the greenback has put huge pressure on the exporters. In 2009-10 the rupee has strengthened 12.6% against the dollar and 8.3% against the euro year-on-year.

India has secured a contract of buying 4.7 million tonnes of the soil nutrient at $370 per tonne for FY 2011 with an option to buy more, nearly 20% cheaper than the previous year’s price. The country also imports most of its di-ammonium phosphate (DAP) requirement and has tied up for 7 million tonnes DAP at $500 a tonne.

Industrial output grew slower than expected 13.5% in March from the year-ago period. The slow growth is because of the partial withdrawn of stimulus measures and an increase in interest rates. The Planning Commission however believes that the slowdown in the March industrial output will not affect the GDP of FY 2009-10.  RBI said that the capital account will be opened gradually and there is no plan of imposing Tobin tax to curb currency speculation. Tobin tax is a transaction tax on currency conversions intended to curb volatility and speculation. The capital account convertibility is integrally attached with the broader goal of economic growth. However, RBI also expressed its preference for long-term equity flows over the short-term debt flows.

In the global arena, US market regulators and six major exchanges accepted the need for new safeguards to curb trading in plunging markets, an effort to address last Thursday’s mysterious market freefall.

The European Union (EU) agreed to a loan package, along with International Monetary Fund (IMF) support, to stop a credit crisis in Europe. The European rescue plan, valued at more than $900 billion (€720 billion), has three main components. The biggest provision at nearly $570 billion (€440 billion) takes the form of government-backed loans to regain confidence in the weak credit markets. A second measure is the expansion of a $77 billion (€60 billion) stabilisation fund, which will be available to Eurozone states facing exceptional circumstances. Finally, the IMF said that it would contribute $284 billion (€220 billion). The European Central Bank (ECB) will buy eurozone government bonds and private debt. The IMF said that Greece's public debt is sustainable over the medium-term; however, low growth could be a setback for the country.