Political Stability key to rally

Political instability saw the market turn nervous this week with the CPM raising hackles over the Indo-US nuclear deal.

The issue grew menacing with the CPM threatening to pull out of the UPA government and the Congress standing firm.

When all seemed lost and mid-term polls seemed almost certain, with the opposition BJP also readying itself, the CPM took a step back by saying that there was no intention of destabilising the present government.

The last day of the week saw Bombay Stock Exchange's Sensex finish 260 points or 1.84 per cent higher at 14,424.87. The 30-share index swayed 810 points during the week from 13870 to 14680.

National Stock Exchange's Nifty closed 75 points or 1.83 per cent higher at 4190.15. The 50-share benchmark swung 222 points during the week from 4040 to 4262.

Week over week, the Sensex gained 217 points and Nifty 82 points.

The rebound Friday, though due to short covering, has raised expectations of a move higher. “The market is looking exciting and volatility seems to have subsided,” said Sumeet Rohra, technical analyst, Tricolor India.

Drawing comparisons, he said Asian markets have recovered 10-18 per cent from lows whereas the Indian market just 2 per cent.

“If nothing deteriorates on the political front, our market will rally next week. Once we manage to cross 4262 on the Nifty, we will enter a strong bull run.”

Inflation for the week ended Aug 11 inched up to 4.10 per cent from 4.05 per cent in the earlier week. Analysts had expected the number to remain unchanged.

The scene on the global front was peaceful for the first four days of the week after the US Federal Reserve cut its discount rate to infuse liquidity into its system.

However, with Countrywide Financial Corp, the biggest US mortgage company, warning that the housing downturn could create a recession sent panic signals to investors.

Asian stocks too fell for the first time in five days Friday after Bank of China said it had almost $9.7 billion invested in US sub prime loans.

“Two major issues surrounding the Indian market are the sub-prime woes and political uncertainty. Though things look settled a bit, we are still not out of the woods. It will be a trading market next week in the range of 14000-14700 levels,” said Manish Sonthalia, vice president-equity strategy, Motilal Oswal Financial Securities.

It needs to be seen whether the Indian market will be able to sidestep these uncertainties. The outlook for next week is that of guarded