BSE Sensex at 4-month closing low as inflation hurts

By Manoj Dharra

MUMBAI (Reuters) – The BSE Sensex closed near a four-month low on Monday led by lenders after higher-than-expected inflation dented hopes of near term rate cuts, adding gloom to a market hit by risk-off sentiment.

The spike in inflation, coming after a contraction in factory data, again laid bare the concerns of foreign investors about India’s slowing economy and policy paralysis in government.

The main BSE index has fallen 14.2 percent since its 2012 peak in February, largely driven by a pullout by foreign investors.

The main 30-share BSE index fell 0.47 percent to 16,215.84, its fifth successive session of fall and lowest closing since January 16. The broader 50-share Nifty fell 0.43 percent to 4,907.80.

Nifty futures trading faced order execution issues which were later resolved.

Lenders such as HDFC Bank(HDBK.NS) led decliners after the inflation print, but traders are hoping liquidity enhancing measures like a cut in cash reserve ratio coupled with more open market operations by the central bank may help in the near term.

“Given headline inflation numbers are still high, RBI cannot resort to repo cuts, but CRR cuts and OMOs are possible given liquidity tightness in the system,” said Sandip Sabharwal, chief executive-portfolio management services, Prabhudas Lilladher.

“With growth slowing down, stable core inflation and crude oil falling in last one month, (rate) easing will happen but at a later date,” he added.

India’s wholesale price index rose a faster-than-expected 7.23 percent in April from a year earlier, compared to an estimated 6.7 percent.

Shares in HDFC Bank fell 2 percent, while ICICI Bank ended 1.54 percent lower.

Financials stocks were also hit after Moody’s downgrade of the financial strength ratings (BFSR) of ICICI Bank(ICBK.NS), HDFC Bank and Axis Bank.

Engineering conglomerate Larsen and Toubro (LART.NS) logged 1.88 percent gains after the company said it estimated 15-20 percent growth in new order wins and revenue in fiscal year 2012/13.

L&T also reported a better-than-expected 14 percent growth in net profit for quarter ended March.

Shares in India’s energy conglomerate Reliance Industries hit their lowest since March 2009, ending 2.28 percent lower, on continued worries over fledgling gas output at KG D6.

On May 8, the company cut estimates for proven gas reserves in its Indian blocks by 7 percent to 3.67 trillion cubic feet (tcf).

Power producer NTPC(NTPC.NS) fell 0.4 percent to 147.50 rupees after Jefferies downgraded the stock to “underperform” from “hold”, and cut its target price to 125 rupees from 175 rupees.

(Additional reporting by Abhishek Vishnoi; Editing by Subhadip Sircar)