The Hindu Business Line : Adding fuel to fire: Sensex tumbles on inflation fears, weak global cues

Mumbai, June 4 Stocks tumbled across the board on fears that the fuel price hike by the Government would further aggravate inflationary tendencies and affect corporate profitability.

The fuel price hike, coupled with negative news from the international markets, doused all buying enthusiasm on Wednesday.

The BSE-benchmark Sensex fell 2.81 per cent shedding 447.77 points to close at 15,514.79; the broader S&P CNX Nifty fell 2.76 per cent, closing at 4,585.60.

“The markets reacted badly to the oil price hike, which might lead to inflation inching towards nine per cent and a possible rise in interest rates,” said Mr Manish Sonthalia, Vice-President, Equity Strategy, Motilal Oswal Financial Services.

“It was more of global cues rather than domestic issues that led to the fall in the market,” according to Mr Gaurav Dua, Head of Research, Sharekhan. The US markets fell sharply on news that some investments banks were in trouble.

The markets in US and the UK were negative on Tuesday on speculations that Lehman Brothers may report financial losses, and also on account of the downgrading of major investment banks by a rating agency, pointed out analysts.

Foreign institutional investors are selling substantially, said Ms Anita Gandhi, Head of Institutional Business, Arihant Capital Markets Ltd. “There is concern from overseas investors that the import duty on crude that accounted for 19 per cent of the budgeted revenue, which has been waived, might cause the fiscal scenario to deteriorate,” she said.

The FIIs were sellers to the tune of Rs 1,198.8 crore on Wednesday, while domestic institutions were net buyers by Rs 419.8 crore, according to a provisional data available on the NSE.

The traded volumes are already very thin; and with FIIs selling continuously, it will definitely lead to a sharp fall in stock prices, said the Head of Research at a broking firm.

Analysts said higher inflationary expectations immediately gave rise to fears of a CRR or interest rate hike, leading to a sell off in banking and realty stocks. The auto sector also witnessed major selling, as higher petroleum prices would have a negative impact on auto sales, in addition to the sector being interest-rate sensitive, said analysts.

While 676 stocks advanced on BSE, 1,967 stocks declined. Among the Sensex stocks, only one (ONGC) advanced, while all others declined.