Weekly Update 10th – 14th May

The stock markets around the world are more or less trying to top out at higher levels. World markets are falling like ninepins on the back of fear that Europe’s debt crisis could spread in other European Union countries and may upset the global economic recovery. The hope of some rescue package tabled down when Trichet made the statement that the ECB’s 22-member Governing Council didn’t discuss buying government debt to stem the contagion.


Markets from Europe to US tumbled as high as 11 percent during the week. Indian markets too ended their journey in deep red in the week gone by after concerns of sovereign debts in Europe sparked sharp sell-off in global equities.


The worst hit were sectors like metal, realty, cap good and banks while oil & gas bucked the trend. In another event, Fitch downgraded the ratings for Chinese banks and has improved outlook for Indian banks. Quality of growth & large speculative investments funding by Chinese banks is the concern area. Whereas the tighter provisioning norms by Indian banks regulator has led to the improvement in Indian bank’s outlook. As a matter of fact European Union comprising of 27 countries accounts close to 19 percent share in India’s total exports & thus may affect the manufacturing sector.


The European crisis may also affect the overall sentiments of the industry and could affect the fund raising plans of companies in India & abroad. The risk aversion in global equity markets resulted in large withdrawal by foreign institutions & the money sought its place in safe haven like bonds & gold.


Now all are eying how European leaders will come forward to halt the fiscal worries & prevent a sovereign debt crisis after European Commission President Jose Barroso said that they will defend Euro, whatever it takes.With the crisis looming, Inflation, a major concern may not be a worry factor with the metals & crude prices coming down. And the central banks in world over may keep up the liquidity & may not tinker with the interest rates for an extended term.


The week went by saw a sharp rise in volatility along with a major fall in stock markets around the world. Even the Base metal commodities tanked down though precious metals that is Gold and Silver saw a sharp rally in times of uncertainty. Overall trend of all world markets including ours is down now. Nifty faces resistance between 5200-5100 levels and Sensex between 17500-17000 levels.


On the commodity front, continued debt contagion fears in Europe triggered blood bath in some commodities, especially in metals and energy. It also resulted in terrific rally in gold, which is not a general phenomenon. Expected hung parliament in UK may also give boost up to dollar index. Back at home, depreciation in local currency also added volatility. As regards trend of metals and energy in short run, after witnessing a razor sharp fall, these commodities may trade in range, however, overall trend is still down, except gold and silver.


Agro commodities performed better on improved fundamentals. Buy at dip could be a good strategy for agro commodities.

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