Markets ended lower for the second consecutive week as investors fretted over high inflation eating up profit margin of companies and increasing possibility that Reserve Bank of India may hike interest rates further in the January policy.
It was a rocky ride for the markets this week as volatility ruled the roost. The Sensex commenced the week on a negative note, plunging 467 points on Monday followed by a subdued closing on Tuesday. Although, Sensex recovered partial gains mid-week, it was unable to hold on to the pull back as disappointing Infosys results and poor industrial output data pulled a plug and dragged the Sensex lower by 351 points on Thursday, followed by another slump of 322 points on Friday after inflation for the month of December surged to 8.43%. The Sensex declined 830 points, or 4.2% over the week to close at 18,860 and S&P CNX Nifty ended at 5655.
Markets have entered in a bear grip after falling 8.5% since the beginning of the year. Technical analyst Prakash Gaba said, "the market unfolded weak sustaining above 5750 on Friday in the morning session and finally cracked and closed in the negative near our target of 5560." Technically the market is weak and we could see lower levels in the days to come, levels of 5535-5378 cannot be ruled out, added Gaba. Even Avinash Gupta, Vice President Research Equity, Bonanza Portfolio said, "sentiment has weakened considerably as the market has broken below 5700 and it may drift downwards."
Raft of data from industrial output to inflation for the month of December weighed on the markets. Industrial output data for the month of November was reported at 2.7% compared to 11.3% in October. Whole Sale price index, headline inflation for December surged 8.43% year on year versus 7.48% in November cementing expectations that RBI may raise interest rates by 25 bps to reign in inflation.
On the earnings front, IT bellwether Infosys commenced the earnings season on a sedate note. Infosys reported a 14.3% rise in net profit for the third quarter below market estimates as rising rupee weighed. Furthermore, it gave a muted guidance for sequential growth and the management also indicated cautious outlook. The stock was down 4.9% at Rs 3202 for the week and was unable to hold on to partial gains after brokerage Goldman Sachs upgraded the stock to buy from neutral.
Investors continued to punish stocks which reported poor results. Steel Authority of India (SAIL) touched a 52-week low of Rs 159.65 on Friday as investors dumped shares after it reported of 33.9% drop in its net profit to Rs 1,107.5 due to rise in raw material costs which affected the profit margins. The stock closed at Rs 161, down 9.7% for the week.
On the other hand HDFC reported strong Q3 numbers after it posted 33% jump in net profit to Rs 891 crore but gave into the market rout, closing down 6.2% for the week at Rs 641.
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BSE Bankex and Capital goods were the top sectoral losers for the week, down 5.8% and 5.3% each.
Banks were beaten down badly as investors continued to dump banking shares on worries over rising interest rates affecting banks profit margins. Canara Bank was the top loser, down 9.6%, HDFC bank fell 9.5%, Kotak Mahindra Bank declined 8.4%, SBI and ICICI Bank were off 3.8% and 3.5% each.
IT shares were also out of favour this week on weak Infosys results, rivals Wipro lost 3%, HCL Technologies declined 0.9% and TCS was off 2%.
Even Capital goods index witnessed selling pressure due to weak factory output data. Gammon India fell 9.1%, Thermax lost 8.5% and Larsen & Tourbo slipped 7.5%.
Realty shares also lost ground, HDIL fell 11.4%, Peninsula Land declined 10.6% and Orbit Corporation fell 10%.
On the Sensex, besides HDFC Bank and Larsen & Tourbo, Jai Prakash Associates fell 7.5%, Reliance Industries lost 6%, Tata Steel and Bajaj Auto dipped over 5% each.
Bharti Airtel was the only weekly gainer on the Sensex, up 1.2% over the week.
Broader markets also ended in the red, the midcap index fell 3.3% and smallcap index declined 3.9%. From the midcap space Shree Ashtavinayak was down 14.2%, KSK Energy fell 14.7% and Jet Airways slipped 12.3%. From the smallcap sector, Singrun Holdings declined 22.3%, SE Investments fell 19.1% and Fame India lost 12.5%.