MARKET
u p d a t e

• Inflation : The annual rate of inflation, based on the point-to-point wholesale price index (WPI), fell to 5.44%
  (WPI level 172.5 compared to 163.6 a year ago) for the week ended May 31, 2003 from 5.65% in the previous week, despite prices of primary articles and fuels being stuck at previous week’s levels. The rate of inflation was at
  1.93% a year ago.
• Industrial Growth : Industrial production (IIP) rose by 4.9% in Apr 2002, compared with a 4.1% growth in the corresponding month in 2002. The manufacturing sector has posted 5% growth in Apr 2003, against 4% in Apr 2002. Mining and Electricity sector grew by 8.3% and 1.9% in Apr 2003 against 3.6% and 5.2% respectively in Apr 2002. As per user-based classification, production in consumer goods sector has declined to 5.8% in Apr 2003 from 8.9% in Apr 2002. Consumer durables witnessed a negative growth of 2.2% in Apr 2003 against a growth of 3.6% in corresponding period last year. Consumer non-durables sector also declined to 8.3% in Apr 2003 from 10.7% during the same period last year. Production in basic goods sector fell to 3.9% in Apr 2003 from 4.7% in Apr 2002, while the intermediate goods sector posted a robust performance by clocking a 4.1% growth in Apr 2003 against 0.1% growth in Apr 2002.
• Infrastructure Growth : Core sector growth (index of six infrastructure industries) grew 3.9% (at index level 168.3 compared to 162 a year ago) during Apr 2003, against 5.4% in the corresponding period of 2002, on account of a fall in cement (-2.9%) and crude production (-1.9%). Finished steel grew at 11.9%, petroleum refinery production at 6.6% and electricity at 2% in Apr 2003.
• Foreign Trade : Exports grew 8.71% in April 2003 to $4.34 bn compared to $3.99 bn in the same month a year ago. The rise in exports comes notwithstanding the SARS crisis and the war in Iraq. Imports witnessed a huge jump of 39.44% to $5.86 bn in April 2003, compared to the $4.21 bn a year ago.
• Forex Reserves : Foreign exchange reserves touched $81.67 bn. in the week ended June 06, 2003 boosted by
  foreign investment and trade. This was mainly due to the rise in the foreign currency assets. Gold and SDRs remained unchanged.

OUTLOOK
This year we have seen strong revival in some segments of the manufacturing sector. Foreign exchange reserves are comfortable. Monsoon is expected to be better than last year, which could boost the farm sector. We expect economic growth to be healthy on the back of stable manufacturing sector growth. Inflation has also come down below 6% and is expected to range between 5-5.5% going forward.

• Call Money : Propelled by strong capital flows, liquidity conditions remained easy. This pushed call rates to sub-repo levels in a band of 4.75-5%. The surplus liquidity was evident in the huge daily subscriptions received by RBI in daily LAF repo auctions, averaging over Rs.20,000 cr.
• Gilts : Burgeoning forex inflows, a strong rupee and drop in inflation aided a cautiously positive undertone in the market. In the first half itself, there were two scheduled auctions and state bond sale and both of them received good response highlighting the fact that there is excess liquidity in the system. Subsequent to the auctions, sentiments gradually turned positive on the back of the 50 bps cut by European Central Bank benchmark rate from 2.5% to 2%, much higher than anticipated. But RBI ruled out any possibility of repo rate cut in the near future. Thus focus gradually shifted towards the medium and longer-end, resulting in flattening of yield-curve. The 10-year benchmark (9.81% 2013) yield touched 5.76% in the first week.
• Rupee : Rupee was volatile, but it touched a two-year high of 46.74 against the US dollar in the first week. Rupee has benefited from the weakening of the dollar globally and increased dollar inflows in the recent past. Forward premia were also volatile tracking the underlying spot.
  
  

OUTLOOK
The outlook for the debt market continues to be positive. Globally, interest rates are expected to remain soft. Liquidity conditions are very comfortable and the CRR cut to 4.50% will push another Rs.3,500 cr. into the system. ECB has already reduced its interest rates and the Fed is also expected to follow suit in its forthcoming meeting in the last week of June. Following the global trend, markets expect a repo rate cut to bridge the arbitrage and act as a defense against the appreciating rupee. These expectations will continue to drive the market in the coming times.

• General : The market started the month on a positive note on the back of FII inflows and timely arrival of monsoons. A firm trend in the US market also helped the sentiment to remain buoyant. The BSE Sensex reached a 5-month high level crossing the 3350 mark. Buying activity was witnessed across sectors like steel, auto-ancillaries, pharma, banking, cement, infotech, oil & gas, textiles etc. By the end of the third week of June, the Sensex was a whisker away from the 3500 mark.
• Tech : Tech stocks joined the rally on the back of sustained positive trend in Nasdaq. Tech pivotals like Infosys Tech, Wipro, HCL Tech and Satyam Comp rallied and so did a host of second-rung IT stocks.
• Auto : Stocks like Telco, M&M, Punjab Tractors, Hero Honda and Bajaj Auto surged on renewed buying support following the hopes of a good monsoon. Hero Honda boosted by improved vehicle sales figures for May 2003. Action was also seen in auto ancillary stocks on improved outlook on outsourcing. Stocks like Autom obile Corporation of Goa, Banco Products, SKF Bearings, Apollo Tyres, Sundram Fasteners and Ucal Fuel rallied.
• PSU : PSU Stocks like IOC, ONGC, HPCL, GAIL and IBP were in demand on hopes of mega dividends and expectations of improved profit margins. But fears of a possible delay in the government's disinvestment programme also played in the mind. The sector has sparked good FII interest.
• Banking : Volatility was witnessed in PSU bank stocks on conflicting reports about the Government's pricing mechanism for return of equity by state-run banks. The Centre is believed to be evolving a formula with respect to return of equity by banks either at premium or at par. Stocks like BoB, PNB, Canara Bank, Oriental Bank of Commerce etc. witnessed a roller-coaster ride. .
• Pharma : Pharma pivotals like Dr Reddy's Lab, Ranbaxy, Cipla, and Sun Pharma firmed up on fresh buying support. A host of second-rung pharma scrips like Lupin, Shasun Chemicals, Orchid Pharma, Glenmark Pharma, Natco Pharma and Aurobindo Pharma firmed up further. Second-line pharma scrips were in demand the back of their attractive valuations and their thrust on exports.
• Others : FMCG stocks like Hindustan Lever also rose on prospects of better monsoon. Buying support from UTI lifted Reliance Industries (RIL), which surged on the back of high volumes. Buying was also witnessed in select cement shares.

OUTLOOK
If the pace of FII inflows continue at the current rate, stock markets can be expected to move up higher. A favourable decision on the buyback of PSU bank equity by the government will help in keeping the sentiment positive. The progress of monsoon is being watched keenly and a good rainfall (better than last year) could boost the overall sentiment further.

BSE Sensex	S&P CNX NIFTY
Gilt yield curve	Wholesale price index
	The Wholesale Price Index for the week ending May 31, 2003 stood at 172.5, rising by 0.2% against its previous week’s level