Markets this week: A bloody nose after a long time !

It was the worst week for the markets since the last 32 weeks.There was mayhem across board. The losses this week were Sensex (5%), Nifty(5%), BSE Mid cap(4.5%), BSE Small cap(5%), FMCG(5.5%), Bank(5.5%), IT(5%) among others and none were spared.

Monday saw some marginal gains in the momentum of last wonderful Friday last week which saw a cut in fuel prices though inflation was high at 6.73. Inflation numbers came in at 6.63% for week ended Feb 10th as well against expectations of 6.68% which was some positive but really these numbers continue to spook investors. This was the week when the government took serious action of lowering duties on metals, and edible oil scrapping duty on cement etc. Inflation remains a supply side problem really and its tough to guestimate when things will change. The base effect will continue for at least 6-8 more weeks.

Japan increased interest rates middle of the week though really there was no knee jerk reaction as the markets had been kind of expecting it. There were hikes in interest rates by SBI and ICICI bank as well and thats the big negative. Market participants have been waiting for the budget.

Its a combination of everything. Its just the lack of money inflow to support the market. And keeping this money away is high inflation, higher interest rates domestically, higher interest rates in Japan which will now reduce liquidity. There is also a fall in real estate prices which has taken the shine off the real estate stocks.

Overall there has been a feeling that markets have been overvalued and now conditions are such that good news will be tough to come by. Growth numbers for the corporates will suddenly not appear too bright or positive given the base effect.

Its just this which has led to buyers moving away. The last 2000 points run has largely been led by large caps such as Reliance, Bharti, ICICI, Bhel, Bajaj , Larsen and a couple of others. So really a crack in some heavyweights leads to such downsides across the board.

The scenario is certainly not positive.. however, we expect that the Budget will give some upsides. The FM this time is less constrained because of Bouyant revenues. The markets are pricing in a non event really. So.. its fingers crossed.

Cement stocks were hammered this week. This had been post the scrapping of the import duty. There was also the note of Crisil which made a cautionary statement. However, as per talks there are worries that increased cement prices may be countered by the Government with a ban on cement exports. (This looks unlikely give that cement has less than 2% contribution to the basket of goods used for calculation of wholesale price index.). There is also talk that in the budget the duty may be made advalorem from the fixed duty for now. Its a possibility to keep the Cement companies from charging higher. This appears difficult given the implementation issues for the same. Important to note that cement stocks continue to sag expecting the worst and our guess is that there will be no major negatives and this sector will see positives post the budget. However it will be tough for them to announce big price hikes on the worries of Government backlash.

Bank of Japan (BOJ) raised interest rates for the first time in seven months, by a quarter percentage point to 0.5 percent. This was an attempt to rectify what the central bank itself views as the "abnormal" state of the credit policy. The target for the unsecured overnight call rate, which the BOJ uses as the key target rate in the short-term money market, was increased to 0.5 percent from 0.25 percent. It is for the first time since September 1998 that the key policy rate has been at 0.5 percent or higher. The BOJ's stance on rates has significant implications for the entire world economy as the cheap Yen has been used to fuel markets globally and more specifically India.

HLL announced results with revenues up 7.4% and Profits up 10% which were somewhat disappointing. The growth of 8.5% domestically is the issue. However, a warmer winter is to blame partly as skincare volumes were impacted by lower sales. Valuations at 23X FY07 with slow growth on cards is something which does not excite us. The pressures will be from increasing advertising costs going ahead. Its at best likely to be a market performer.

The plastic products major Sintex Industries and the Gujarat government entered into an agreement for the construction of 50,000 economically weaker sections (EWS) quarters with monolithic construction technology. The proposed investment in the project is about Rs 75 0 Cr. Monolithic constructions are housing solutions designed by Sintex to address mass and low-cost housing needs. With the company's range of plastic products with manufacturing units at 8 regions across India. These broadly fall under the categories of water storage tanks (16% of 9mFY07 plastic revenues), pre-fabricated structures (47%) and industrial custom molding (37%). This deal should be a promising one for Sintex Inds and should add to the topline as well in the bottom line too. We had a call and note here..Booming Real estate will be beneficial for for Sintex..

Technically too it was a bad move today as 13700 was taken out. This was a big support and that means that if todays low 13568 is taken out early next week we could be headed to as low as 13040. On the upside there are resistance is at 14120 which could be seen. Please note that the range is large and it could be really wild swinging. So hold your horses. Selling calls and Puts may not be a bad idea to capture the volatility but thats for the big players who tend to trade than invest. For investors, its best to lighten positions on upsides.