Inflation spooks market

Sensex down 726 points on likely economic slowdown.

Concerns over inflation and a likely economic slowdown dragged the Bombay Stock Exchange Sensitive Index to a record fourth quarter low on Monday.

The possibility of the Reserve Bank of India raising rates or increasing the cash reserve ratio also dampened sentiment.

After a short rally of over 1,000 points last week, the 30-share Sensex on Monday fell by 4.44 percent or 726 points to close at 15,644. The broader index S&P CNX Nifty of the National Stock Exchange (NSE) declined by 4.20 percent or 207 points at 4,734.

Institutional investors stayed away from the market on concerns of mounting domestic inflation and a likely slow-down in the economic growth. Other Asian markets also fell sharply on reports of a dip in US consumer spending.

The Shanghai Composite (down 3 per cent) was the second top loser in the Asian market after the Sensex. Nikkie was down 2.30 per cent at 12,525 and Hang Seng fell 1.88 per cent at 22,849.

The European markets too opened lower on Monday. The key benchmark indices in the UK was down 0.95 per cent. The stocks on Wall Street had declined on Friday after a warning from retail major - JC Penny - said profits will be affected on account of abysmal consumer confidence and as economic data spurred further signs of a recession.

Also, a prominent Wall Street analyst warned that earnings will not support current dividend payouts in 2008 at Citigroup, Wachovia Corp and other US banks.

As per the provisional figures on BSE, foreign institutional investors (FIIs) were net sellers to the tune of Rs 865.79 crore in the cash market. Domestic funds, however, bought shares worth Rs 566 crore on Monday.

"It's difficult to see much upside with inflation at a 13-month high. We could witness some more correction," Ajay Bagga, CEO, Lotus Mutual Fund, said.

Amitabh Chakrabhorty, head equity at Religare Securities, is of the view that the inflows from some of the top institutions was an important factor under the current circumstances. If that gets curtailed, then there could be some more turbulence this week.

"FIIs sold in the Asian market on Monday on a rising fear of credit market losses in US and Europe," said Chakrabhorty.

Back home, the sentiment was also hit by reports that the Institute of Chartered Accountants of India (ICAI) has asked companies to disclose losses on a mark-to-market basis incurred due to derivatives trades.

Analysts are of the view that this may hit Q4 results badly.

The market breadth looked balanced as 50.57 percent, or 1,365 stocks, rose against the declines of 47.83 per cent, or 1,291 shares. Other 1.59 percent or 43 shares remained unchanged.

The major pull to the market came in from stocks in banking, information technology, realty and capital goods. Infosys Technologies, other software exporters and banking stocks drove down the key index to its biggest fourth-quarter loss.

Top loser HDFC declined 8.79 percent at Rs 2,3783. ICICI Bank was the top looser down 7.79 percent at Rs 710. TCS was down 6.80 percent at Rs 810. ONGC fell 6.68 percent at Rs 981. Wipro was down 6.32 percent at Rs 425 and Infosys fell 6.30 percent at Rs 1,430.

Other index majors including Reliance Industries, Reliance Energy, Hindalco, HDFC Bank and Hindusthan Unilever Ltd fell in the range of 3-6 percent.