The Hindu Business Line : Capital goods, bank stocks dip on high inflation

Mumbai, April 4 The three-year high inflation figure for the week-ended March 22 brought the Sensex tumbling by 500 points on Friday, with capital goods, bank, realty, power and consumer durables stocks in the forefront of the fall.

The latest inflation figure was 7 per cent, even higher than the figure 6.68 per cent that had shocked the market over the previous week.

The BSE Capital Goods index was down 4.5 per cent, Bankex dipped 2.95 per cent, while Realty dropped 2.34 per cent and Power 2.99 per cent. The Consumer Durables index fell 1.04 per cent.

“As inflation goes up, prices of products will rise. Even as the rate of inflation is going up, salaries are not keeping pace. The FMCG and consumer durable sectors would take a hit, as rising inflation would mean that the cost of these products would increase,” said Mr R. Balagopal, Senior Vice-President, Fedex Securities Ltd.

Among the capital goods stocks, Crompton Greaves was the worst affected as the stock tumbled by 7.61 per cent followed by Alstom Projects (7.59 per cent) and BHEL (6.89 per cent).

Production cost

“Sectors such as metal, banking, realty and capital goods will be most affected by the inflation. The Government will be trying its best to contain inflation by cutting down the prices of steel and metal. As the cost of production keeps rising, this would affect the profitability of these companies. The financial sector might be affected, especially the banking sector, as there are talks of RBI hiking the cash reserve ratio,” said Mr Alex Mathew, Head of Research, Geojit Financial Services Ltd.

In the BSE-Bankex, IOB tumbled 7.24 per cent, Oriental Bank 5.95 per cent and Kotak Mahindra Bank crashed by 4.95 per cent.

Marketmen said that even as the valuations of banking and FMCG sectors were beginning to look good; high inflation rate seems to have taken away their sheen.

With the inflation rate increasing at the same pace, it is obvious that the Government will take measures to contain it, feel marketmen. On Monday, the Government had decided to abolish import duty on crude edible oils, cut the rates on refined edible oils, and also ban non-basmati rice exports among other measures to ease the price pressure.

Mr Sanjay Someshwar, a sub-broker with Ventura Securities, feels that things could go from bad to worse for the markets. “How can you sustain a GDP of 8.5 per cent if the inflation is ruling at 7 per cent? The Government will have to take very smart measures to contain inflation,” he added.

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