The inflation numbers stunned the markets, which appear to be getting ready for a long bear phase ahead.
After the benchmark index dropped to its lowest in almost 10 months on Friday, analysts said markets will remain challenging until crude oil prices and inflation settle lower. Some players said 13,500 could be a strong support for the Sensex now. HDFC Securities said there could be "far-reaching consequences on the downside as the crucial 14,600 level for the Sensex has been breached.
The Bombay Stock Exchange's Sensitive Index on Friday fell 516.70 points, or 3.4 percent, to 14,571.29, its lowest since August 24. All but one stock in the index fell.
The broader index S&P CNX Nifty of the National Stock Exchange (NSE) shed 3.48 per cent or 156 points to close at 4,347. The Nifty broke 4400-levels, which was deemed to be strong support.
Tushar Poddar, vice president (Asia Economic Research) of Goldman Sachs expected RBI to hike rates by another 100 basis points through a combination of repo rate and the cash reserve ratio over the next three months.
Andrew Holland, managing director, strategic investment group of DSP Merrill Lynch, said the stocks markets are likely to remain under pressure for the next quarter on account of inflation and policy decisions from the government. Also, the current adverse political scenario in the country will add to the negative cues for the markets, which have also been hit by global recession.
The Asian markets were mixed on Friday with the benchmark indices in Hong Kong, China and Singapore up between 0.31-3.01 per cent, they were down between 0.23-1.81 per cent in Japan, Taiwan and South Korea.
The key indices in UK, Germany and France were down between 1.07 and 1.43 per cent. The top losers on the BSE were Reliance Industries Ltd. (RIL) (down 6.61 per cent to Rs 2,096 a share), Reliance Communication (down 6.65 per cent to Rs 491 a share), Hindalco Industries (down 6.37 per cent to Rs 161 a share and Jaiprakash Associates was down 6.03 per cent to Rs 166.
The BSE Oil & Gas index saw the highest fall among sectoral indices. The index was down 5.03 per cent. The interest rate-sensitive, BSE Realty index was down 4.45 per cent. The BSE Bankex fell 2.97 and BSE Auto index slipped 2.44 per cent.
Other front line stocks, including Ambuja Cement, Bharti Airtel, Tata Steel, Reliance Infrastructure and DLF fell 3-4 per cent. The overall market breadth was poor as 82 per cent, or 2,247 shares, declined against the advances of 16.42 per cent, or 450 shares, on BSE.
