7-year high inflation takes toll on Sensex

Written by Markets Bureau | Mumbai, Jun 13 | Updated: Jun 15 2008, 05:28am hrs
Key equity indices traded in a narrow range, swinging alternately between positive and negative terrains, but as news of inflation trickled in, the bourses headed south to end the day in the red on Friday.

The inflation numbers measured in terms of the wholesale price index (WPI) jumped to a seven-year high of 8.75% for the week ended May 31 from 8.24% a week earlier, stoking the already-prevailing negative sentiments in the markets.

Amid high volatility, the BSE Sensex closed the day almost on a flat note but with a negative bias on Friday at 15,189.62 points, posting a loss of 60.58 points or 0.40%. The broader NSE Nifty lost 22.25 points or 0.49% to end at 4,517.10 points.

The concerns of rise in crude oil prices and consequently a spike in inflation hovered around investors mind for the entire week. During the week, the Sensex lost 382.56 points or 2.45% while the Nifty closed above the 4,500 level for the third time on Friday before finally posting a loss of 110 points or 2.39% in the last seven days.

Foreign institutional investors (FIIs) continued to pull out funds from the bourses, selling $862.4 mn (Rs 3,479 crore) for the entire week (till Thursday) and, as on Friday, provisional figures from the stock exchanges reveal that they were net sellers at Rs116.51 crore while domestic institutional investors bought equity worth Rs 457.33 crore.

Daljeet Singh Kohli, head PCG Research, Emkay Shares and Stocks, said, The Indian markets have too many uncertainties in the form of rise in oil prices, inflation, currency depreciation, political uncertainty due to impending elections. Presently, our markets are relatively underperforming compared to other emerging markets and markets in Brazil are giving better returns. This is keeping FIIs away from the Indian shores.

Fears of an interest rate hike by the RBI to tame the ever-looming inflation took a toll on all the interest rate-sensitive stocks for the entire week. Realty stocks hogged the limelight as the BSE realty index lost the most amongst other sectoral indices, plunging close to 9% or 540 points for the week to close at 5,670.23 points on Friday. This was followed by BSE Bankex which lost 210 points or 2.89%.

On the derivatives segment, anticipating a downward slide, investors have started to build huge short position in interest rate-sensitive sectors like realty, auto and banking.