Weekly Wrap: Sensex, Nifty rebound after plunging to 28-month lows

Despite opening on a negative note and suffering losses on three of the five sessions, the market managed to post fairly solid gains during the week ended 23 December 2011, due largely to some hectic bargain hunting following recent heavy losses, and partly in anticipation of some monetary easing measures from the central bank following a sharp drop in food inflation.

While the BSE benchmark Sensex ended the week with a gain of 247 points or 1.6% at 15,739, the broader 50-stock Nifty index of the National Stock Exchange closed up 62 points or 1.3% at 4714. During the week, the two indices tanked to their lowest levels since August 2009. Mirroring the sell-off at side counters, the Midcap and Smallcap barometers eased by 1.7% and 1.3%, respectively.

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While concerns about the eurozone economy and worries on the Asian front following the death of North Korean dictator Kim Jong Il dragged the market down on Monday and Tuesday, a recovery in global markets and the upward revision of India's local currency rating by a notch by Moody's lifted sentiment on Wednesday.

The bulls came back with such a force that the Sensex shot up by over 500 points or 3.3% on Wednesday. The Nifty gained nearly 150 points or 3.3% that day. Gains were less pronounced in the following session, but were solid, nevertheless, with the Sensex moving up by 128 points and the Nifty ending higher by around 41 points.

According to the data released by the government on Thursday, food inflation eased sharply to 1.81% in the year to December 10 - the lowest since February 9, 2008 - from an annual 4.35% rise in the previous week.

While fuel inflation remained unchanged at 15.24% in the latest week compared with the prior week, the primary articles price index rose 3.78%, compared with an annual rise of 5.48% in the previous week.

On Friday, despite a firm start and a fairly long spell in positive territory, the market faltered in late afternoon trade and ended weak, snapping a two-day winning streak. Global cues were positive thanks to some upbeat U.S. economic data and renewed hopes about a solution to the eurozone financial crisis, but investors chose to cut positions amid worries about declining growth and forecast for a further slowdown of the economy.

Shares from interest rate sensitive banking, realty and automobile sectors attracted buyers amid hopes of a cut in rates early next year. The central bank's decision to relax restrictions on borrowings by banks under Marginal Standing Facility against their excess SLR Holdings was another positive trigger for bank stocks.

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Metal stocks, led by Tata Steel, Jindal Steel and Hindalco, saw some weak spells last week amid demand worries due to concerns about weakening global economy. IT stocks found some support on the back of some encouraging economic data from the U.S. Though several stocks from the battered down capital goods sector found some support during the week, most of them failed to sustain at higher levels.

Reliance Industries, among the prominent gainers in the Sensex last week, ended 3.2% up. According to reports, the company acquired a minority stake in US-based nuclear design and engineering company Terra Power LLC for an undisclosed sum.

ICICI Bank, HDFC Bank, Mahindra & Mahindra, Tata Motors, Maruti Suzuki, ONGC, Sterlite Industries, Hindustan Unilever and HDFC ended the week with strong gains. Jaiprakash Associates, Larsen & Toubro, Bajaj Auto, State Bank of India and Sun Pharmaceuticals declined.