Indian equities continued to fall for the second consecutive week

• tanvi_singh
• February 8, 2010

Indian equities continued to fall for the second consecutive week in line with the global sell-off in equities. Fears that European countries like Spain, Portugal and Greece will find it difficult to manage their deficits triggered the correction.

There have also been fears that without any improvement in employment in the US, the recovery boosted by government spending cannot be sustained. Despite support from local institutions which are flush with funds, the Nifty continued to slip.

During the week, the Nifty lost 2.91% to close at 4,757. Realty and bank stocks, lost 4.3% and 5.8% during the week. An investment of Rs 1 lakh in stocks over a year would have appreciated to Rs 1.53 lakh while a similar investment made last week would have depreciated to Rs 97,443.

The rupee closed at 46.74 per dollar, from its previous close of 46.18, tracking weak domestic shares and the dollar’s gains versus major currencies. The rupee fell the most in more than three weeks as the deteriorating public finances of European nations, including Greece and Portugal, prompted investors to go to safer bets than emerging market assets.

With the results season over, markets have now shifted their focus on disinvestment as well as the Union Budget. The public offer from NTPC, which ended on February 5, managed to go through, with a lukewarm response. The next in line is Rural Electrification Corporation (REC), which is likely to be closely watched by investors.

Over the last one year, the government introduced three stimulus packages, which resulted in a fiscal deficit rising to 6.8% of GDP. All eyes are now focused on the Union Budget to see how the government tackles this fiscal deficit.

The government has a tough job on hand, since if it withdraws the stimulus package, there could be a threat to growth. The government has been left with a task of maintaining a delicate balance between maintaining growth and ensuring rigorous fiscal discipline in order to bridge the fiscal deficit.

With a stable government at the Centre and a stable stock market, investors expect the government to continue with its disinvestment programme to raise finances. They also expect heavy spending from the government on infrastructure projects such as roads, rail, ports and power. However, rising interest rates are a cause for concern and hence, infrastructure and real interest stocks were hammered during the previous week.

Gold continued its downward trajectory. During the past week, Mumbai gold standard prices moved down marginally from Rs 16,285 to Rs 16,055 per 10 gms. Rs 1 lakh invested in gold over a year is worth Rs 1.21 lakh while over a week, it is down to Rs 98,587.

With gold recognised as the best hedge against inflation, investors continue to stock up gold.

WTI crude continued its decline from $73.64 last week to $73.14, bringing some relief to oil marketing companies. The fall in the stock markets had its effect on the debt market too. The 8.24 GoI Bond maturing in 2018, fell from Rs 103.70 to Rs 103.5, during the week.

Over a year, it fell from Rs 114.23 a year ago to 103.50 on February 6. In rupee terms, Rs 1 lakh invested here left the investors with only Rs 90,606, a loss of 10.4% while investments over a week is down to Rs 99,721. Yields have moved from 6.19% to 7.65% over the same period of time, leading to a fall in prices.
News beuro,

• Last Modified: February 8, 2010
• Filed Under: Latest News, MARKETS, NATION, WORLD