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India inflation makes markets cautious

Publication Date : 17-12-2013


The sudden spike in wholesale price index-based inflation for November at 7.52 per cent numbed the stock market sentiment on the opening day of this week. 

Both the S&P Bombay Stock Exchange Sensitive Index and the broader National Stock Exchange's Nifty moved in a tight range - almost flat - throughout the day's jejune business. 

Analysts said the markets have clearly seen the implications of rise in consumer price index at 11.24 per cent (released last week) and today's jump in headline inflation in coming days. 

The spurts are likely to be factored in by the Reserve Bank of India when it announces its credit and monetary policy on Wednesday this week. 

Overall expectation, derived from quickly conducted opinion polls, suggests the RBI Governor, Raghuram Rajan, will raise the policy repo rate by a minimum 25 basis points or 0.25 per cent.

Under the uncertain conditions - markets grapple to gauge what is in store - the S&P BSE Sensitive Index and 50-share Nifty of the NSE traded almost flat amid drying volume and turnover as investors thought prudence as better part of valour. 

Brokerages and analysts also have recommended risk-aversion until the Reserve Bank spells out its policy and gives some future guidance on the near-term market trend and movement of the partially convertible rupee. 

Meanwhile, irrespective of today's lacklustre markets, the rupee kept floating above the comfort level against the United States dollar, while stocks indices fell for the fifth day in a row.

The 30-stock Sensex closed 56.06 points or 0.27 per cent down at 20,659.52 points. The Nifty ended at 6,154.70 points, down 13.7 points or 0.22 per cent. 

The BSE index moved in a cloistered band between 20,764.52 points on higher side and 20,637.77 points on lower side, which is a difference of 126.75 points. 

Likewise, the Nifty also moved within a small range of 6,183.25 points and 6146.05 points.

A quick opinion poll by brokerages suggests the RBI may increase repo rate (its short-term lending rate to banks) by a minimum 25 basis points or 0.25 per cent. 

Analysts say the forward guidance by the Reserve Bank would stay biased towards anchoring inflation as the RBI Governor has clarified his priority on various occasions. 

The RBI has been studiously following the shooting food price graph. The CPI or consumer price index for November at 11.24 per cent on account of uncontrolled increase in vegetable and food prices is now followed by a similar disturbing hike in WPI at 7.52 per cent against seven per cent in October. 

The shooting graph limits the scope of RBI's credit and monetary policy and more so, analysts say, because the government seems to be unmoved by the growing burden of higher prices of essential commodities.



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