Markets fall 3% on rate hike, US debt fears

Investors fretted over US debt woes and slowing domestic growth after RBI’s aggressive rate hike, which led to a negative closing for the week

Major news for the week

RBI hikes repo, reverse repo by 50 bps

Food inflation at 7.33% versus 7.58%

ICICI Bank consolidated net profit soars 53% in Q1

RIL Q1 net profit at Rs5,661 crore

SEBI raises open offer size to 26%



Indian indices

The major disappointment this week was the higher-than-expected rate hike by the Reserve Bank of India ( RBI). Inflation continues to be the top priority for the RBI and growth needs to be sacrificed to smother inflationary pressures. Concerns that higher interest rates will pinch corporate profit growth and hurt Indian economy disrupted sentiments.

Also, nervousness in the global equities due to a US debt impasse added to the negative mood. Investors feared that the US' debt-ceiling standoff could force a default or downgrade of US debt.

This week Indian markets witnessed volatility as traders rolled over positions in the derivatives segment from the near-month July 2011 series to August 2011 series.

The Sensex swung 813 points between a high of 18945 and a low of 18132 to close the week 525 lower or 2.8% at 18192. The Nifty swung 248 points between a high of 5702 and a low of 5454 to close 152 points lower or 2.7% at 5482.

Global indices

All the global equities closed lower this week, as US and euro-zone debt worries weighed on the sentiment. CAC 40 was the biggest loser of the week, down by 4.46%, then comes Dow Jones down by 4.24% and Nasdaq down by 3.58%. Rest of the markets lost in the range of 0.02-2.95%.

Sectoral and stock screening

Barring BSE TECk up by 0.12% and BSE Healthcare (HC) up by 0.04%, all the sectoral indices ended the week in the negative terrain. BSE Realty was the top loser this week, down by 7.39%, followed by BSE Capital Goods (CG) down by 5.22% and BSE Metal declined by 5.05%. Rest of the sectors closed lower between 0.25-4.44%.

Looking into 'A' group stocks, Idea Cellular was the top gainer of the week rising by 10.61%, followed by Reliance Communications up by 8.55% and United Phosphorus surged by 7.72%. Top three losers of the week were- SKS Microfinance fell by 23.27%, Adani Enterprises went down by 20.56% and BGR Energy Systems lost by 13.69%.

FII/MF activity

The foreign institutional investors ( FIIs) have remained net buyers for the fifth consecutive week and purchased Indian shares worth a net of Rs1248.4 crore, substantially higher than Rs306.6 crore seen in the previous week. The domestic institutional investors ( DIIs) turned net sellers this week and sold Indian shares worth a net of Rs215 crore as compared to net buy of Rs439 crore seen in the previous week.

Outlook

The stock specific action will be seen as earnings will continue to flow next week. Investors will also keep an eye on the export-import data for June 2011 as well as auto sales and cement dispatches numbers for July 2011. The Monsoon session of the parliament begins on Monday (August 01, 2011) and will continue up to September 08, 2011. On the global front, the United States is moving closer to an August 02 deadline to raise the country's debt ceiling. Developments across the globe and FII inflows will remain in focus.