The markets received a battering during the week as the policy action by the RBI resurrected lurking fears of unbriddled inflation and its effect on India Inc. The markets continued their previous week's downtrend to slide to 6-week lows and even the 308-pts bounceback on Friday, that pulled the indices from their longest 9-day losing streak in about a decade, failed to lift the sagging sentiment. The Sensex plunged almost 1,100 points in the course of the week before ending at 18,518, weaker by 617 points or 3.2% and the Nifty shed 198 points or 3.4% to 5,551. The mid-cap index ended at 6863, down 230 points or 2.3% and the smallcap index ended at 8342, down 372 points or 4.2%.
The week started on a depressing note as speculation of an impending interest rate hike at the RBI policy meet scheduled on May 3 kept the market participants on tenterhooks. And the central bank's action of tightening the money supply noose by hiking rates, and actually exceeding most expectations at that, did nothing to soothe the jangled nerves (Markets were spooked by more than 2% on policy day). Strengthening its hawkish stance vis-a-vis spiralling inflation numbers, the Reserve Bank announced a 50 basis points hike in repo and reverse repo rates to 7.25% and 6.25% respectively under the liquidity adjustment facility (LAF) in its third quarter review of monetary policy 2010-11, while leaving the cash reserve ratio (CRR) unchanged at 6%. Moreover, the banking regulator lowered the economic growth projection for this fiscal to 8 per cent and promised to continue with its anti-inflationary stance. The markets did try to salvage some lost ground on Friday, aided by a 10% drop in the prices of crude oil, but it was still a case of too little too late in the day.
Meanwhile, the Finance Minister Pranab Mukherjee said monetary policy tightening was required "to contain inflation in the context of the volatility of commodity prices, including energy prices and food prices in the international market". And the RBI Governor D Subbarao, commenting on the growth-inflation tradeoff, said, "high and persistent inflation undermines growth by creating uncertainty for investors and driving up inflation expectations".
And snapping a fortnight-long rise, food inflation declined to 8.53% in the week ended April 23 from 8.76% in the previous week as wholesale prices of pulses declined by 7.39% on a year-on-year basis.
RCom was gripped by nervousnes as the 2-G scam investigations gained momentum through the week, plunging by 10% at Rs 89 to top the losers chart among the BSE-Sensex scrips. Bajaj Auto, which was also the top loser in the auto pack, corrected by 9.8% at Rs 1319. Reliance Infra, Sterlite and Bharti Airtel lost around 7% each.
In the midcap space, Triveni Engineering plunged by 61% at Rs 39, SKS Microfinance corrected by 27% at Rs 331 and OnMobile Global lost 19.4% at Rs 112. And the smallcap space saw the likes of Allied Digital plunging by 26% at Rs 66, Mastek losing 19% at Rs 94 and Money Matters losing 15% at Rs 52.
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Given the extent of week-week-week decline, the high-beta metal index shed more than 5% to emerge as the leading sectoral loser on the BSE. Hindustan Zinc weakened by 8.6% at Rs 130 to top the losers list on the BSE. Sterlite shed 7.4% at Rs 167, Sesa Goa lost 7.4% at Rs 290 and metal major Tata Steel lost 3.3% at Rs 594.
The rate-sensitives also took it on the chin in the aftermath of the rate hike by the banking regulator. In the realty space, Anant Raj Industries and HDIL plunged by 12% each at Rs 77 and Rs 141, while DB Realty lost 10.8% at Rs 86. The auto space saw Bajaj Auto sliding by 9.8% at Rs 1319, Amtek Auto shedding 8.1% at Rs 150 and Ashok Leyland losing 5.8% at Rs 49. Among other auto heavyweights, Maruti shed 3.8% at Rs 1268 and Tata Motors lost 2.2% at Rs 1200. And in the banking space, Canara Bank dived by 8.1% at Rs 579, Bank of India shaved off 7.6% at Rs 421, SBI lost 5.8% at Rs 2642 and ICICI Bank lost 2.9% at Rs 1081.
On the other hand, Hero Honda, BHEL and HDFC Bank were the sole gainers in the BSE-Sensex pack. Hero Honda firmed up by 3.2% at Rs 1764, while BHEL strengthened by 2.8% at Rs 2057 and HDFC Bank edged higher by 0.2% at Rs 2299.