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Mumbai: Indian outsourcing companies should underpin the stock market this week, bolstered by a weakening rupee that will boost their export earnings. Raging inflation will pose a threat to makers of cement and steel, which have been targeted by the government to contain spiraling prices.
State-run oil refiners like Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp could face more pressure as their losses in revenue soar because of selling fuel at government-set low prices while oil climbs to record highs.
Shares in Shipping Corp of India will be in focus as its board is scheduled to meet on Tuesday to recommend a bonus issue.
"Besides news-driven moves I don't see anything happening," said trader Ankit Patel. "There could be some consolidation because investors are wary of building large positions."
Inflation, which headed towards eight per cent in early May, was a serious concern and the central bank's monetary tightening measures are beginning to bite demand. Industrial growth in March was a measly three per cent - the slowest pace in six years.
"We are waiting for steel and cement price cuts to come into force. You have to be patient," Finance Minister P Chidambaram said on Friday after the inflation data was released.
Patel said inflation was a problem across countries around the world because of soaring oil prices and shortages of food.
In Pakistan, for instance, inflation in April accelerated to more than 17 per cent, the fastest pace in a quarter century. The Pakistani rupee has fallen more than 10 per cent this year.
In India, inflation in the week ended May 3 was at 7.83 per cent, the highest in three-and-a-half years, and analysts said the figure would be revised well above eight per cent when the final data is compiled. On Friday, the government revised upwards the inflation number for the week ended March 8 to 7.78 per cent from 5.92 per cent announced at the time.
"Going by the sharp revisions inflation must be above nine per cent already," equity trader Anmol Bhushan said.
Little impact
Yet the data had little impact on the stock market and the Sensex climbed 4.2 per cent last week to 17,434.94, its highest close in 11 days, with technology firms like Infosys, TCS and Wipro scoring good gains. The market is closed tomorrow for a local holiday.
The rupee's tumble has given a boost to software stocks. The software giants get more than half their revenue from the US, and a weakening rupee will boost their dollar earnings when converted into the local currency.
The rupee fell to a low of 42.92 per dollar on Friday, at which point its losses in 2008 exceeded eight per cent, but recovered to finish at 42.5075 - down 2.2 per cent on the week. It has now fallen for four weeks in a row, and could drop more.
In 2007, the rupee had gained 12.3 per cent and the software stocks were underperformers. Although the rupee's slide is good news for export-driven firms, it will cause more pain for inflation as import costs rise.
India, which imports 70 per cent of oil it consumes, will be dealt a double whammy - soaring world prices and a weaker rupee.
- The writer is a journalist based in India.
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