Weakness may persist

The market is likely to remain subdued in the coming week, as global equity market sentiments remain weak due to high crude oil prices. Back home, high inflation and a possible continuation of the high-interest rate environment may continue to weigh on the market sentiment.

The government on Wednesday, 4 June 2008, raised petrol by Rs 5 a litre and diesel price by Rs 3 a litre in an attempt to curb mounting losses of state-owned refiners thereby stoking inflation.

Inflation, already running at nearly 4-year high of 8.24%, is likely to rise further following the fuel price hike. The immediate impact of fuel price hike on wholesale price inflation could be as high as 65 basis points in near term. If inflation cannot be controlled, interest rates may go up as a result of the cascading impact of the fuel price hike.

The wholesale price index rose 8.24% in the 12 months to 24 May 2008, above the previous week's annual rise of 8.1%, government data released today, 6 June 2008, afternoon showed. The reading was the highest since 28 August 2004, when it stood at 8.74%. Inflation for the week ended 29 March 2008 was revised upwards to 7.75% from 7.41%.

Hinting at a possible increase in cash reserve ratio (CRR) or short-term interest rates, Reserve Bank of India (RBI) governor YV Reddy on Thursday, 5 June 2008 said that the central bank would take all measures to curb inflationary expectations. The RBI governor said the situation was extraordinary in respect of oil prices and that the basic approach of RBI was to carefully manage liquidity conditions. The next monetary policy review of RBI is on 29 July 2008.

Foreign institutional investors (FIIs) sold shares worth Rs 1,872.20 crore so far in the month of June 2008. They sold shares worth Rs 17,241.70 crore in calendar year 2008, till 4 June 2008. Domestic funds sold shares worth Rs 144.20 crore in the month of June 2008, till 4 June 2008.

The BSE Sensex declined 843.39 points or 5.14% to 15,572.18 in the week ended 6 June 2008. The S&P CNX Nifty fell 242.3 points or 4.97% to 4627.80.

The BSE Mid-Cap index fell 410.39 points or 6.07% to 6,350.15. The BSE Small-Cap index slumped 436.99 points or 5.37% to 7,696.05.