Sensex plunges 200 pts on inflation; rate cut the only saviour?

It’s a clear signs of bears on the street today. The inflation numbers haven’t gone down too well with the markets as both the Sensex and the Nifty tanked by 1.2 percent and 1.3 percent, respectively.

According to provisional data, the BSE Sensex closed lower by 202 points to 16,677, down249 points from the day’s high and close to the day’s low. The BSE midcap (-1.32 percent) and thesmall cap index (-0.65 percent) also fell. The S&P CNX Nifty closed 66 points below the psychological 5,100 level at 5,054. The market breath was negative. On the BSE, 1,676 stocks declined whileonly 1035 advanced.

Barring IT and Teck, all the other sectoral indices closed in the red. Rate sensitive sectors likerealty and banking fell almost 3 percent followed by capital goods, power and autos.

However, the ITsector was up 0.25 percent. This was mostly due to the 1 percent gain in Infosys.In the 30-share Sensex, Tata Motors was the biggest loser (-4.6 percent) followed by L&T (-4 percent). The fall in L&T could be attributed to the fact that its weighting on the FTSE All-World Index is expected to bereduced as of the close of trading on Friday, according to an earlier release from the index provider.

There will be a lot of expectations from the RBI on 18 June when its announces itsmonetary policy. According to UR Bhat, MD of Dalton Capital Advisors, the Nifty could fall to

4,800 if the RBI fails to disappoint.

Market experts had hopes of a rate cut from the RBI but looking at the inflation numbers, this may be difficulty.While today’s number has diminished the chance of a rate cut, Dipan Mehta, member, BSE, NSE, feels that themarkets will now react to the Greece elections and other global reactions.

Inflation based on the wholesale price index (WPI) accelerated to 7.55% in May 2012 from a year agoas prices of manufactured products and fuel increased, adding to concerns of a rise in price pressures.Inflation was at 7.23% in April 2012.

However, looking at the current spate of bad numbers hitting the markets, the RBI may be left with no choice. While India’sGDP slowed slipped to a nine year low of 5.3 percent in the March quarter, the flat industrial production only adds tothe urgency of the deteriorating state of the Indian economy.