The Hindu Business Line : Low inflation numbers fail to cheer up the market

Decline in export numbers in October, the highest in many years, dampened the spirits and triggered a broad-based sell off. The bourses continued to remain weak and choppy despite the encouraging IIP numbers for September 2008.

This time around, the Index of Industrial Production (IIP) numbers came in at 4.8 per cent as compared with 1.3 per cent in August 2008.

The fall in the excise and custom duties collection in October also weighed heavily on the markets.

But what’s surprising is that markets continued to move southwards despite a significant fall in inflation.

For the week ended November 1, inflation was just about 8.98 per cent, down from 10.72 per cent a week earlier.

Index watch

All the sectoral indices in BSE ended in the red. The BSE Realty Index was the biggest loser of the week, losing 14.1 per cent.

Tightening credit and loss in demand have taken a toll on the sector. That the credit crunch is beginning to hit the sector hard was substantiated by the Confederation of Real Estate Developers’ Association of India petitioning the Government to ease FDI and ECB norms. BSE Capital Goods index fell by 8.9 per cent and was the second biggest loser of the week.

Concerns that high borrowing costs, slowing order inflows and delay in execution of current projects may hurt these companies’ earnings could be attributed to fall.

The auto index too was not spared; it registered a fall of over 8.3 per cent. Here again, high interest rate apart, concerns of slackening global demand may have driven the sell off.

The metals pack managed to cap its losses to 5.4 per cent. The growing anticipation of a pick-up in demand from China after the announcement of its stimulus package may have helped.

Seldom do measly gains in the stock price qualify a stock as the biggest gainer. But last week was an exception. Tata Power, despite putting in a mere 1.2 per cent gain over the week, was the biggest gainer among the Sensex stocks. On the losing side, however there were many. Jaiprakash Associates (lost 16.2 per cent), DLF (14.2 per cent) and Tata Motors (13.8 per cent) were among the top losers.

Following the announcement that it may curtail output, SAIL shed over18 per cent. Bank majors, ICICI Bank and SBI fell on concerns that tight credit markets may lead to a rise in non-performing assets and impact their margins.

Other events

The rupee reported its biggest-ever single day loss of 2.5 per cent in 12 years on Wednesday, owing to increasing dollar demand and heavy FII outflows. It registered the biggest weekly drop in a month and closed at Rs 49.01 to a dollar. The Indian crude basket declined to less than $50 a barrel from a high of $147 a barrel, a few months ago.

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