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Monday, Dec 13, 2004

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Bourses on correction mode

THE SUSTAINED rally on the bourses for several weeks came to a halt last week and heavy profit selling saw blue chips losing a sizable part of their earlier gains.

The Sensex (the benchmark sensitive index of the Bombay Stock Exchange) reached a new intra-day high of 6386.29 on the opening day of the week but subsequent sessions saw heavy selling by mutual funds and domestic institutional investors. It ended the week at 6233.54 registering a decline of 90 points over the previous week-end close of 6322.76. The S & P CNX Nifty index of the National Stock Exchange shed 27 points during the week under reference to close at 1969.

Foreign institutional investors, who were aggressive buyers in the last one month, slowed down their buying. In the five sessions of the week they made net purchases for Rs. 1,377.60 crores as compared to Rs. 3,174 crores in the previous week.

Mutual funds were net sellers to the extent of Rs. 327.45 crores. The foreign funds were net purchasers at Rs. 1,323.30 crores and mutual funds Rs. 1,355.14 crores in the debt market during the week ended December 10.

The slowdown in FII activity is attributed to year-end considerations. However, operators and investors feel that the markets are witnessing a healthy correction after the recent surge.

Part of the fall in indices was also attributed to selling in shares of the heavy weight Reliance group due to the ongoing controversy over the ownership issue in the group. However, there was significant buying in mid-cap stocks.

Reliance Energy lost nearly 13 per cent to Rs. 506 while Reliance Industries shed 8 per cent to close below the Rs. 500 mark at Rs. 499.40. These two stocks have a significant weightage in the BSE Sensex.

Activity in banking stocks

Bank stocks continued to attract buying with State Bank of India gaining more than three per cent at 595.20. ICICI Bank gained two per cent at Rs. 359.50 following the announcement of a sponsored ADR issue by the bank. Karnataka Bank, Bank of Punjab and ING Vysya Bank witnessed buying. Banks in the public sector such as Oriental Bank of Commerce, Union Bank of India and Canara Bank attracted fresh buying.

Sugar stocks such as Sakthi Sugars, Rajshree Sugar, Bajaj Hindustan, Balrampur Chini and Thiru Arooran Sugar registered significant gains on hopes that sugar prices would remain firm due to a smaller production in the current season.

Sugar production has dropped by 32 per cent in the year ended September 30, 2004 to 137.26 lakh tonnes from 200.99 lakh tonnes.

Shares of consumer durables were in demand and the BSE consumer durable (BSE CD) index rose sharply by 58 points to 1410.

Despite a drop in prices for the commodity, cement stocks ruled firm with ACC rising 7 per cent to Rs. 313 and Gujarat Ambuja Cements by 2.9 per cent to Rs. 373. Grasim and UltraTech Cemco witnessed sustained buying. It is hoped that cement prices will go up, as there is good demand from the construction sector.

With no major expansion of capacity by manufacturers and a notable increase in exports it is felt that cement companies will report a healthy performance this year.

IT stocks were in favour following a significant depreciation in the value of rupee against dollar as software exporters stand to gain on a depreciating rupee.

Stocks of power producers and power equipment manufacturers were in keen demand in the expectation of fresh investments on capacity expansion in this sector.

Interest rates lower

Interest rates ended lower as compared to the previous week with the ten year government securities trading at 6.65 per cent yield and the five-year papers at 6.35 per cent. The year on year inflation for the week ended November 27 was 7.3 per cent.

Rupee plunges

After continued rise in earlier weeks the rupee turned weak and fell back in successive sessions last week.

It plunged by 56 paise to 44.77 to a dollar in a single day (December 10), following heavy all-round demand for dollar from corporates and importers amidst reduced supply.

Rising world crude prices also had an impact in the first four sessions.

The rupee has depreciated by a whopping 111 paise against the greenback in a week.

Our Bureau

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