The current upmove is building, but buy only the dips

The market closed the week with a gain of over 4% on positive global cues and the government’s bold initiative to implement economic reforms, which were stalled earlier due to resistance from within the ruling UPA alliance as well from the opposition. In another courageous development on Friday, the government approved foreign direct investment (FDI) in multi-brand retail, aviation and broadcast services.

The Sensex closed the week at 18,464, up 781 points (4.41%) and the Nifty gained 236 points (4.41%) to settle at 5,578. We see the uptrend in the market continuing, and one should use the dips as opportunities to buy.

On Monday the market was range-bound and settled with minor gains as investors adopted a “wait-and-watch” attitude ahead of the release of domestic economic numbers. The benchmarks picked momentum in the second half and settled higher on Tuesday on buying in blue chips. Optimism from the German Constitutional Court ruling on the Eurozone bailout fund helped the domestic market close higher on Wednesday.

The volatile market pared all its gains on Thursday but ended in the green following a report that the Inter-Ministerial Group recommended de-allocation of four mines to private companies and encashing of bank guarantees of three companies for non-development of the mines allotted to them in the stipulated time-frame. Domestic and global events saw the market closing around 2.5% higher on Friday and in the positive for the eighth day in succession.

All sectoral indices settled higher with the BSE Metal and BSE Realty, both up 6%, emerging as the top gainers.

The top gainers among the Sensex stocks were Hindalco Industries (up 12%), Tata Motors (up 11%), Tata Steel, Larsen & Toubro (up 9% each) and ICICI Bank (up 7%). The losers were Cipla (down 3%) and NTPC (down 2%).

The Nifty was led by Hindalco Ind (up 13%), Tata Motors (up 11%); IDFC, Tata Steel and L&T (up 9% each). Major losers on the benchmark were Cipla (down 3%), NTPC, Power Grid Corporation (down 2% each), Ranbaxy Laboratories and Siemens (down 1%).

India's industrial production growth rate slowed to just 0.1% in July due to poor show by manufacturing, mining and capital goods sectors, reflecting weak economic activity. Industrial output, as measured by the Index of Industrial Production (IIP), in the April-July period of this fiscal has thus contracted by 0.1%, according to the official data released on Wednesday.

Headline inflation rose to 7.55% in August as prices of potato, wheat and pulses as well as manufactured items soared. Inflation, as measured by the wholesale price index (WPI), was 6.87% in July.

Biting the bullet, the government on Thursday hiked diesel prices by a steep Rs5.62 per litre and restricted the supply of subsidised cooking gas to six cylinders per household in a year to fetch an additional Rs20,300 crore. It, however, left kerosene rates untouched and spared an increase in petrol price by cutting excise duty by Rs5.30 per litre.

The Inter-Ministerial Group (IMG) on coal blocks allocation has recommended de-allocation of four mines allotted to private firms and encashment of bank guarantee of three others on the ground of non-development of mines within a prescribed time. This is the first recommendation by the IMG ever since controversy broke out over the allocation of coal blocks after the recent Comptroller and Auditor General report that criticised the government for allotting them in a non-transparency.

In international news, global markets rallied after the US Federal Reserve on Thursday said it would start a third programme of purchasing $40 billion per month in mortgage-backed bonds, known as quantitative easing (QE3). The Fed added that it would continue with the scheme until it saw substantial improvement in the jobs market. The US central bank also pledged to keep its benchmark interest rate at ultra-low levels until at least mid-2015.

This apart, the German Constitutional Court earlier this week cleared the path for the creation of a 500 billion euro rescue fund to tackle the Eurozone’s debt crisis after a huge popular petition to block it was rejected. The decision allows Germany to ratify the treaty to establish the European Stability Mechanism (ESM) and will enable it to become effective next month. But an important condition attached to the ruling means that Germany's liabilities will be capped at 190 billion, unless parliament rules otherwise.