WEEK AHEAD

Global cues, oil price to dictate trend
With no key events scheduled in the forthcoming week, the Indian stock market will closely watch global stock markets for direction. Also the inflation data in the year through 2 August 2008 will be released after market hours on Thursday, 14 August 2008. Market remains closed on Friday, 15 August 2008 on account of Independence Day.
Releasing the Economic Outlook for 2008-09, the Prime Minister’s Economic Advisory Council (EAC) on Wednesday, 13 August 2008, projected a lower GDP growth rate of 7.7% during 2008-09 mainly on account of lower agriculture and industrial growth, and adverse fallout of global developments. The EAC had earlier in January 2008 projected a growth rate 8.5% for 2008-09.
Inflation had hit a fresh 13-year high of 12.01% in the year through 26 July 2008, and remains a major concern for the central bank. High inflation will mean that tight monetary policy stance by the central bank may continue. On 29 July 2008, the Reserve Bank of India (RBI), at its quarterly policy review late month raised repo rate by 50 basis points to a seven-year high of 9% to curb inflation and dampen inflationary expectations. RBI also raised the cash reserve ratio (CRR), the proportion of funds that banks must keep on deposit with it, by 25 basis points to 9%.
Sentiment is likely to remain edgy in the near term dampened by a series of negative news. Car sales recorded a dip in sales for the first time in 33 months as interest rates, inflationary pressures and hike in fuel prices dented demand. Passenger car sales declined 1.7% to 87,724 units in July 2008 over July 2007, according to data released by the Society of Indian Automobile Manufacturers.
Relentless monetary tightening by the RBI has finally started to catch up with industrial growth. A slowdown in the manufacturing sector pulled down India's industrial growth in June 2008 to 5.4% from 8.9% a year ago. This is however higher than 4.1% growth as per revised figures in May 2008. The index of industrial production (IIP) went up 5.2% in Q1 June 2008 compared to 10.3% growth in Q1 June 2007.
The aggregate results of 3,399 companies showed 5.20% rise in net profit to Rs 63,870 crore on 36.70% rise in sales to Rs 7,68,665 crore in Q1 June 2008 over Q1 June 2007. The net profit growth is the lowest in the past 20 quarters. In the June 2008 quarter, a number of companies were hit by mark-to-market (MTM) losses on their foreign exchange (forex) exposure.
On the positive side, a further fall in crude oil prices may boost the sentiment. Crude oil prices have declined sharply from record high $147.27 a barrel hit on 11 July 2008. US crude was up 50 cents at $116.50 on Thursday, 14 August 2008 due to a larger-than-expected drop in US crude and gasoline inventories, and disruptions to Caspian supplies.
Foreign institutional investors (FII)’s bought shares worth Rs 986.10 crore in the August 2008 (till 13 August 2008). FIIs sold shares worth Rs 26,315.90 in the calendar year 2008. Mutual funds sold shares worth Rs 228.60 crore in August 2008 (till 12 August 2008).
Key benchmark indices ran out of steam after five–week rally to edge lower in truncated week ended Thursday, 14 August 2008. The barometer index BSE Sensex declined 443.64 points or 2.92% to 14,724.18 and the S&P CNX Nifty lost 98.80 points or 2.18% at 4,430.70, in the week.