The local equity market indices has extended its losses in late afternoon session on high inflation numbers and lower-than-expected financial results announced by Infosys Technologies. Meanwhile, global cues were also not that much encouraging at this point of time. US index futures were trading in red and most of the other Asian markets settled in red. Back home, only the capital goods sector managed to remain in green during the afternoon trade while IT, Teck, Realty, Bankex and Oil and Gas counters were witnessing profit booking. Shares in Infosys Technologies shed more than 9 per cent after the Indian outsourcing firm reported lower-than-expected fourth quarter net profit, and dragged the broader markets down.The market breadth on the BSE was strongly in favor of declines in the ratio of 1643:1174 while 102 scrips remained unchanged. The broader markets were also trading in the negative territory; the BSE Mid-cap and Small-cap indices fell 0.23% and 0.10%, respectively.
The BSE Sensex declined 289.44 points or 1.47% at 19,407. The index touched a high and a low of 19,700.96 and 19,337.12, respectively.
The BSE Mid-cap and Small-cap indices fell 0.23% and 0.10%, respectively.
All the BSE sectoral indices barring CG up 0.42% were trading in the red. IT down 5.96%, Teck down 4.43%, Realty down 1.42%, Bankex down 0.81% and Oil and Gas down 0.72% were the major laggards.
The top gainers on the Sensex were Hero Honda up 3.24%, Bharti Airtel up 1.35%, Bajaj Auto down 0.84%, L&T up 0.84% and Jaiprakash Associates up 0.56%.
On the flip side, Infosys down 9.44%, Wipro down 5%, DLF down 2.85%, HUL down 2.10% and ICICI Bank down 2.05% were the major losers on the index.
India's headline inflation jumped sharply and unexpectedly in March as prices in the manufacturing space continue rising at a rapid pace even as prices of food commodities, which have been main driver of inflation till January, seem to be easing. According to the latest data released by the government, headline inflation in the country stood at 8.98% in March 2011 against 8.31% in the previous month.
The number must be a big surprise not only to analysts but policy makers as well. Consensus estimate for March inflation was around 8%. Even the central bank had pegged its fiscal-end estimate, after revising it upwards for three times, at 8%. However, actual inflation clearly beat the estimates by nearly 100 basis points (bps). High inflation has been the biggest concern for policy makers for last one year or so and looks like it will continue to be so in 2011 as well.
What is worse is that inflation dynamics are also changing. While earlier it was the food commodities or primary articles that were driving inflation, it is now the manufacturing goods space where prices seem to be rising rapidly. This becomes clear by looking at the sector wise numbers, manufacturing inflation jumped from 4.94% to 6.21%. Over the last two months, manufacturing inflation has gone up by nearly 250 bps.
Clearly, it will put more pressure on the RBI. While most economists including those from the central bank have been arguing for a while that since inflation was mainly food prices driven, which are really a supply side phenomenon, monetary tightening would not be very effective in bringing inflation down, thus also pre-empting the need for a steeper hike in monetary policy rates. Now however inflation is being driven by the manufactured goods, and clearly it is the responsibility of the RBI to check the demand side of the economy from getting overheated.
The central bank will release its next annual policy review early in May. With the manufacturing space looking to get overheated, the RBI will face a difficult question of whether to continue with its calibrated approach of raising rates by 25 bps or might be it was time for a 50 bps hike. The dilemma of the RBI becomes all the more difficult by the fact that even as inflation is rising, especially in manufacturing space, industrial production, at least as far as the index of industrial production (IIP) - the official gauge suggests, is growing at a very poor pace. On the whole, the latest inflation number has revealed inadequacy of policy top check inflation that has been implemented so far and has put the RBI into a tight corner.
The S&P CNX Nifty tumbled 84.50 points or 1.43% at 5,827. The index touched high and low of 5,907.35 and 5,806.45, respectively.
The top gainers on the Nifty were Hero Honda up 3.40%, Bharti Airtel up 1.25%, Dr Reddy up 1.11%, L&T up 0.82% and Bajaj Auto down 0.79%.
On the other hand, Infosys down 9.41%, Wipro down 4.75%, HCL Tech down 2.99%, and DLF down 2.91% were the losers on the index.
Majority of the other Asian markets settled in red, Hang Seng declined 0.02%, KLSE Composite tumbled 0.25%, Nikkei 225 trimmed 0.65%, Straits Times lost 0.19%, Seoul Composite plunged 0.03% and Taiwan Weighted slid 0.96%; while Shanghai Composite surged 0.27% and Jakarta Composite surged 0.61%.
The European markets were trading in mix. France's CAC 40 lost 0.21% while Germany's DAX climbed 0.30% and Britain's FTSE 100 advanced 0.19%.
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