Sustained Slide in Sensex in India on Inflation Worries

Chandrasekhar Atreya
14 Jan, 2011
New York City

Stocks in Mumbai fell 1.8% on Friday and 4.34% for the week. A sustained elevated inflation may force central bank to lift rates. Steel Authority of India net dropped 34% in third quarter. The Food Security Bill is termed as unworkable by the expert committee.

[R]5:00 PM Mumbai, 8:30 AM New York – Stocks in Mumbai fell 1.8% on Friday and 4.34% for the week. A sustained elevated inflation may force central bank to lift rates. Steel Authority of India net dropped 34% in third quarter. The Food Security Bill is termed as unworkable by the expert committee.[/R]

The benchmark index lost 1.8% and fell sharply in the week after December inflation figures dampened investor sentiments.

The BSE Sensex fell 1.8% or 345.70 to 18,837.12, and fell 4.34% for the week. Indian market has declined the most in the year among the twenty largest markets. India faces a serious threat of inflation if government fails to arrest food prices.

The rupee closed at Rs 45.65 per dollar in Mumbai today.

Annual rate of inflation measured in wholesale price index increased to 8.43% in December compared to 6.92% for a year ago. The index increased 1.3% to 144.1 from 142.3 in December. The inflation base was revised to fiscal year 2004 from the base of fiscal year 1993 since August of 2010.

A government expert committee has recommended sharply diluted implementation of the food security bill proposed by the National Advisory Council, headed by the UPA Chairperson Sonia Gandhi, paving way for the second serious disagreement in a month between arms of the government and its high-profile advisory body.

“It will not be possible to implement the NAC recommended food entitlements for either of the phases,” the expert committee said in its report on the Food Security Bill made public on Thursday.

The NAC had recommended legal entitlement to subsidized food grains to both ‘priority’ and ‘general’ households, covering at least 72% of the population in phase-I starting 2011-12 and 75% in phase-II starting in 2013-14. Against these, the expert panel had recommended assured delivery of wheat at Rs 2 per kg and rice at Rs 3 per kg to about 46% of rural and 28% of urban population.

Steel Authority of India Ltd, India’s largest steel maker, warned on Thursday that rising input costs, especially raw materials, were taking a toll on margins and may force additional increase in product prices.

The state-run firm, due to launch an up to $1.8 billion share sale in February, reported that its net profit in the fiscal third quarter to December, fell to Rs 1,107 crore compared with Rs 1,676 crore a year ago for a drop of 34%. Net sales rose to Rs 11,400 crore from Rs 9,700 crore in the prior year quarter.

Tata Steel said today that its 24% stake in Australian firm Riversdale Mining was a strategic investment which it would hold on to.

“Riversdale is strategic for us. We’re there for the long-term, we will stay,” Tata Steel Vice Chairman B. Muthuraman said in Singapore today.

India has finalized free trade agreements with Japan and Malaysia and are scheduled to be signed in February, India’s Minister for Commerce, Anand Sharma said today.

“Much more will come when we sign the final agreements, which will give a further boost to trade and also the agreements between India and the ASEAN on services which will be completed very soon,” Sharma told a press briefing in Singapore today.