EQUITY MARKET UPDATE
 
During the week, Sensex lost 2.92% and closed below 15,000 at 14,724. The Banking index, which rose sharply in the previous three weeks, gave up some of its gains; fell 6.65% during the week. Most of the other indices also posted negative returns during the week, except for BSE IT. The inflation was reported at 12.44% during the week.
 
Outlook for the week
 
The near term outlook continues to remain subdued, with markets expected to remain range-bound and volatile, since the absolute level of crude oil prices are still beyond the comfort level and the concerns about the US credit crises persist. However, we continue to remain positive on the long term outlook of the equity markets. Significant correction in the commodity prices, especially crude oil, would augur well for emerging economies like India.

DEBT MARKET UPDATE

Outlook for the week

Government borrowing for the second half is likely to be higher than the budgeted numbers on account of the pay commission impact and subsidies on account of fertilizer and oil. Also, tax revenues are likely to be lower than projections incorporated in the budget. Apart from the supply issue, the market would continue to be worried on the inflation front with second round impact of fuel price revisions manifesting themselves in the coming months. Recent oil price correction brings limited relief since there is still a considerable differential between where the domestic prices are set and where they should be in case the element of subsidy is removed from the equation. Moreover, it is difficult to say with certainty where the oil prices are headed. We believe that till such time the Federal Reserve is following an easy money policy, commodity prices are likely to have an upward bias. It remains to be seen whether demand destruction becomes a potent enough force to drive down oil prices significantly in the near future. At present we see this as a low probability event.

We continue to maintain our view that interest rates would have an upward bias and that the Central Bank would maintain its hawkish stance in the near term.
 
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