High inflation figure sends markets packing

Sensex dips 500 pts as tight monetary policy fears dampen mood.

Both the key stock indices, the BSE Sensex and the S&P CNX Nifty, lost substantial ground on Friday as the government announced a record inflation rate of 7 per cent, a three-year high.

CRASH-LANDING

The turnover in the cash market remained low at Rs 16,940 crore

The derivatives segment was no different with a turnover of Rs 33, 943 crore

The overall advance-decline ratio showed poor market breadth "" over 67 per cent or 1,823 shares fell while 30 per cent or 808 shares rosedistance

The number spooked investors and the street gave in without a fight as the Sensex crashed nearly 500 points, while the Nifty shed 124 points. Investors are anxious that the economic growth will be sacrified as the government battles inflation.

Anup Maheshwari, executive VP, head equities, DSP Merril Lynch AMC, said"There is some base effect playing out and the inflation could trend higher for some time, putting presure on the government to control inflation. That's what the market is worried about."

Naval Kumar Bir, MD, StanChart AMC, said, "The ability of RBI to manage growth in the economy seems to be diluted. With inflation at record highs, there are all possibilities of a tight monetary policy."

The turnover in the cash market remained low at Rs 16,940 crore. The derivatives segment was no different with a turnover of Rs 33, 943 crore.

The overall advance-decline ratio showed poor market breadth "" over 67 per cent or 1,823 shares fell while 30 per cent or 808 shares rose. Provisional data from the exchanges showed that foreign institutional investors (FIIs) were net sellers in the cash segment to the tune of Rs 848.57 crore while domestic fund houses bought stocks worth Rs 579 crore.

Those Asian markets that were open on Friday fell marginally, less than a per cent. On Thursday, the Dow closed up 0.16 per cent at 12,626.

The market may stay at these levels or perhaps move southwards until inflation moderates and interest rates fall. High interest rates, analysts believe, could increase the project costs for companies. Capital goods and banking stocks were the worst hit.

Bharat Heavy Electricals, the country's biggest power equipment maker, led the fall as the firm annnounced weak provisional numbers for the March quarter on Thursday.

The stock closed at a eight-month low at Rs 1,634 and lost 12 per cent in two trading sessions. Home loan player Housing Development Finance Corporation (HDFC), too, was a loser as the street believes high interest rates will keep borrowers away.

The stock closed 6.83 per cent lower at Rs 2,275. The BSE capital goods was down 4.50 per cent while the BSE Bankex fell 2.95 per cent.