By Sanjeev Srivastava in Bombay

The Indian stock markets tested the nerve of even seasoned players this week with wild swings and daily volatility that saw the markets losing or gaining as much as 5% or 6% in a matter of hours.

The big story was Tuesday's income tax raid on the office of a prominent Bombay broker - Ketan Parekh - who has emerged as the biggest bull operator in the last year on the Indian markets and is often referred to as a "one-man army" in local business dailies.

For those who believe that the fate of Indian markets cannot really be linked to one man's fortune, consider this.

As news of the raid spread, the index tumbled by nearly three points or roughly six percent.

And the aggregate market cap on the Bombay stock exchange was eroded by nearly 40,000 crore Rupees (approx $3.8bn).

The market recovered the next day following reports that Parekh had paid an advance tax instalment of about 15 crore Rupees.

Tech stocks suffer

On a sector basis, the trends were mixed.

Technology stocks continued to be hammered a second week running despite some sterling results by Indian software majors.

The market leader, Infosys Technologies, dropped another 10% this week despite a nearly 80% jump in profits in the third quarter vis-à-vis last year.

Infosys ADRs were also hammered down on the Nasdaq.

The reason - punters were expecting the company's profits to rise by over 90%.

Fears of an interest hike in the US and the continued volatility on the Nasdaq was another reason for technology stocks faring poorly.

The star of the week was the share of the FMCG major, Hindustan Lever, which touched its year's high of 2,857 Rupees on Thursday on the back of rumours about a bonus or stock split from the company. The share closed about 140 Rupees lower on Friday.

Vehicle sector promising

The vehicle sector was another area where renewed activity was witnessed this week following reports that the production of medium and heavy commercial vehicles was up 66%.

Passenger car production was also up by nearly 40% in the April-November period last year.

Most market analysts in Bombay continue to remain bullish on a medium to long-term outlook. But they do not rule out a correction in the short term, considering the markets have gone up by nearly 450 points in the first fortnight of the New Year.

The markets will also be watching for the third quarter results of India's largest private sector company - Reliance Industries - which will be out on 20 January.

Savings rate cut

On Friday, the The Indian Government announced a 1% reduction on provident fund accounts and 0.5% cut on post office office accounts.

Nearly 330,000 crore Rupees are there in these accounts which are prime savings instruments for most Indians.

The decision will substantially reduce the interest burden on the government and help reduce the fiscal deficit - which analysts see as the single biggest cause of concern vis-à-vis the country's economy.

It is also likely to trigger off a lowering of interest rates by banks on deposits next week and this should result in more funds flowing into the capital markets