If the Nifty holds above 4,789, gains may persist

The spike in headline as well as retail inflation for the month of May, the depreciating rupee and global issues dominated the scene this week. The market settled in the green on three of the five trading days, with the benchmarks notching gains on the last two trading days in the late session.

Overall, the market closed the week 1% lower. The Sensex declined 140 points to 16,153 and the Nifty closed at 4,891, down 37 points. The market is likely to see a volatile upmove with the Nifty going up to the level of 5,040. Improving economic conditions may take the market even higher. However, this upmove will be staggered and also as long as 4,789 is broken.   

A spike in headline inflation for the month of April and weak global cues saw the indices extend their losses on Monday. Support from the European indices and US stock futures resulted in the market closing in the positive on Tuesday. However, the rupee hitting its five-month low and unsupportive global cues resulted in the market closing sharply lower on Wednesday.

The market overcame European fears and closed marginally in the positive on Thursday. Better-than-expected results from State Bank of India and US futures moving from deep red to green provided the much-needed boost to the market in post-noon trade, ensuring a positive close on Friday.

Among the sectoral indices BSE Fast Moving Consumer Goods (up 2%) and BSE Healthcare (up 1%) were the noteworthy gainers while BSE Auto (down 6%) and BSE Consumer Durables (down 3%) were the top losers.

The top five Sensex gainers in the week were Sterlite Industries (up 6%), State Bank of India (up 5%), Infosys, Jindal Steel & Power (up 3% each) and ITC (up 2%). The key losers were Tata Motors (down 13%), BHEL (down 9%), Maruti Suzuki (down 6%), Hindalco Industries (down 5%) and Coal India (down 4%).

 The Nifty leaders were Sesa Goa (up 8%), Sterlite Ind (up 6%), SBI (up 5%), Power Grid Corporation and BPCL (up 4% each). Tata Motors (down 13%), BHEL (down 9%), Reliance Infrastructure (down 8%), Maruti Suzuki (down 6%) and Axis Bank (down 5%) settled at the bottom of the index.

The rupee gained 5 paise to close at 54.42 against the dollar on Friday with the Reserve Bank of India's (RBI) swift action pulling it back from near 55-levels touched in early trade amid strong capital outflows. Dealers said strong dollar demand from importers, mainly oil refiners, on expectation of further rise in dollar on concerns caused rupee's fall.

Headline inflation moved up to 7.23% in April 2012from 6.89% in the previous month. High inflation is a setback to the big picture of the economic growth as well. Prices are rising along side decline in industrial production. Index of Industrial Production (IIP) contracted by 3.5% in March and gross domestic product (GDP) growth slowed to three-year low of 6.9% in 2011-12.

On a similar note, consumer price index (CPI) based inflation, or retail inflation, shot up to the double digit mark at 10.32% in April on account of substantial increase in vegetable, edible oils and milk prices. Based on the CPI, the inflation for March was revised to 9.38% from the provisional estimate of 9.47%.

Earlier this week, global credit ratings agency Moody's downgraded the country's three largest private sector lenders-ICICI Bank, HDFC Bank and Axis Bank-to D+ from C- to align them with the sovereign rating. As a result, the hybrid debt ratings of these banks, except HDFC Bank, will be negatively impacted.

On the results front, engineering major Larsen & Toubro (L&T) on Monday posted 13.9% jump in stand-alone net profit at Rs1,920.41 crore for the fourth quarter ended 31 March 2012 and said it expects a 15%-20% growth in revenues and order book in the current fiscal. The company had reported a net profit of Rs1,686.21 crore during the January-March quarter of 2010-11.

L&T's net sales for the quarter grew by about 21% to Rs18,460.90 crore as against Rs15,261.17 crore in the same period of FY10-11.

India's largest lender State Bank of India (SBI) on Friday posted net profit of Rs4,050.27 crore in the fourth quarter ended March 2012, against just Rs20.88 crore recorded in Q4 of the previous fiscal. SBI's profits had taken a big hit in Q4 of 2010-11 on account of higher provisioning for bad loans and increased tax outgo. Total income of the bank rose to Rs33,959.54 crore in the quarter against Rs26,536.84 crore in the same quarter a year ago.

On the international front, Europe is expected to keep its stranglehold on the markets in the week ahead, as investors take stock of Greece's commitment to the Eurozone and watch for other issues related to the debt crisis.

Facebook's stock market debut did not live up to the expectations as the social network's shares closed the first trading day on a flat note with technical glitches at the Nasdaq stock exchange sending confusing signals to investors. After rising to an intraday peak of $45 apiece, the shares ended at $38.23, up only by 0.61% from the $38 offer price.