 "Worst week of the year for the market")
An unexpected rise in inflation led to a sharp correction in the stock market on Friday, with benchmark indices marking their biggest weekly fall of the year.
The benchmark Sensex and the Nifty fell nearly 1.5%, led by declines in banking, metal and capital goods stocks, to end the weak more than 3% lower.
Consumer inflation inched up in February for a third straight month, stoking concerns future interest rate cuts by the Reserve Bank of India (RBI).
Shares of banking sector majors State Bank of India, ICICI Bank and ICICI Bank each fell more than 2% due to a spike in bond yield prices as consumer price index (CPI) inflation rose to 5.37% in February, higher than economist expectation of 5.2%.
The Sensex ended 427 points lower at 28,503.30, with only a tenth of its components ending with just marginal gains. The NSE Nifty lost 128 points to close at 8,647.75 with the index losing 3.3% during the week. Both the indices posted their worst weekly fall since the week ended December 12, 2014.
The sharp correction this week was caused a global risk-off trade triggered by fears that interest rate increase by the US Federal Reserve could be advanced. The panic caused sell-off in global emerging market (EM) and risky assets and saw a surge in the US dollar. Fund tracking firm EPFR pegged outflows in the Asia EM funds at $2.4 billion.
The foreign institutional investor (FII) outflows from the Indian market were muted. FIIs bought shares worth Rs 67 crore, while their domestic counter parts sold shares worth an almost equal amount, provisional data provided by exchanges showed.
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Analysts said the market has come under pressure due to weak corporate earnings and lack of near-term triggers in the Union Budget.
"Weak earnings growth in the previous quarter and a budget that focused on longer term structural issues meant that there were no immediate triggers to take the equity market higher. Aggressive rate cuts from RBI can revive that sentiment," said Rajesh Iyer, head - investment advisory services, Kotak Wealth Management.
The market fell on all days barring one this week. The benchmark indices had edged up on Thursday following the tabling of the insurance bill and positive economic growth forecast by the International Monetary Fund (IMF).
Analysts most positive news have been priced in as the Indian markets trade around 10% above their long-term valuations. The Sensex currently trades at nearly 17 times its one-year forward earnings estimate. Experts say the valuations are justified as the economic growth is set up pick up from current levels.
"We believe a significant acceleration in economic growth and earnings growth is possible going forward, which has not been factored into the current valuation of the market," said Sukumar Rajah, managing director & chief investment officer, Franklin Templeton Local Asset Management.