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Mumbai, June 2 Fears of inflation and high crude prices continued to haunt the Indian stock markets which fell by more than 2 per cent on Monday.

This was despite the markets opening on a positive note, possibly following the sunny sentiment in the Asian bourses, said analysts.

However, the enthusiasm slipped on news of political differences at the Centre over raising domestic retail fuel prices, combined with the European markets opening weak because of credit crunch fears.

The Sensex fell to 16,063.18, down by 2.15 per cent. The Nifty’s fall was steeper, at 2.68 per cent.

Interesting, said analysts, pointing to the market being close to the 16,000 level of last year, which marked its phenomenal rise.

Although FIIs were net buyers by Rs 254.6 crore on Friday, there was no fresh buying on their part. This is a big negative, said Mr Jignesh Desai, Head of Institutional Sales, SBICAP Securities. FIIs were net sellers to the tune of about Rs 5,000 crore in May when the Sensex fell 8.73 per cent.

According to the research head of a Mumbai-based brokerage, inflation worries are inching up, other macro issues such as oil price rise are all a cause of worry and in addition, micro issues such as a slowdown in corporate earnings are acting as big negatives for the market.

“The GDP growth is expected to moderate to 7.8 per cent in FY09 although downside risks have increased. The macro environment, however, continues to worsen due to rising oil prices, higher inflation, and the increasing fiscal and current account deficits,” said a Goldman Sachs report of Friday.

“The banking sector, realty and metal stocks were facing hedge sell-off,” said Mr Alex Mathew, Head of Research at Geojit Securities. “Most interestingly, the Nifty Put-Call ratio has started falling from 2.17 to 1.93 levels, indicating a further downtrend. Nifty futures discount has increased and open interest on Nifty futures have also increased, suggesting portfolio hedging by institutional investors.”

While 2,066 stocks declined on BSE, only 600 advanced.

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