Markets continue their downward trend

Review of the Week ended 16th Dec 2011.

The week started off on a negative note with the Oct IIP numbers coming in at a dismal negative 5.1%, showing clear signs of an economic slowdown.

There were some positives for the markets this week, but they wasn’t enough to bring cheer to the investor community. The headline inflation for Nov 2011 fell to 9.1 per cent, indicating a definitive cool-off in inflation numbers. Even though many expected inflation to abate below the 9 per cent mark and settle somewhere 8% plus range, it is good to see that after a year of being persistently high, inflation has finally started retracting. Consequently, this prompted the RBI to hit the pause button in its monetary policy stance and hint at a possibility of cut back in interest rates.

But as far as the markets were concerned, none of this seemed to bring about any positive sentiments among investors. Even the easing of food inflation numbers to 4.35 per cent seems to have been ignored by the markets at large.

On the global front, Europe still continues to struggle under the severe pressure of its sovereign debt crisis. At the EU summit, the European leaders agreed on a new fiscal compact, involving stronger coordination of economic policies to strengthen fiscal discipline. While the agreement is necessary for the medium and long-term sustainability of the Euro zone, its ability to resolve short-term funding pressures is being questioned by the markets.

In the US, the week started on a negative note as the Fed’s decided to leave the rates unchanged and did not signal at any more rounds of quantitative easing. However, a fall in jobless claims and some improvement in other key US economic data seemed to restrict the sell-off there. Now with the inflation data expected to be announced today, the markets seem to be anticipating some good news.

Global commodities also saw some action this week as oil futures tumbled down by nearly 5 per cent with Nymex falling below the USD 94 per barrel levels on frantic selling by stockists, on weak global cues and sluggish demand. Gold and Silver futures also declined by 5 per cent each. 

Moving on, all sectoral indices plunged into the red with the capital goods index losing 10 per cent of its value for the second week in a row. Investors have shunned stocks in this space over dismal industrial output numbers for October 2011 (capital goods output declined by more than 26 per cent on a yearly basis).

The interest rate sensitive index, BSE BANKEX fell after the RBI kept the CRR and short-term lending rate steady at its mid-quarter monetary policy review. HDFC Bank fell by 6.49% despite a 20 per cent rise in Q3 advance tax outgo. ICICI Bank also fell 7.59% as its advance tax outflow remained flat at Rs 450 crore. SBI declined by 9.84% as its advance tax numbers fell by 6.48% to Rs 1730 crore.