Sensex in India Plunges 2.8% on Inflation Worries

Devan Biswas
24 Feb, 2011
New York City

Stocks in Mumbai plunged sharply after the latest data showed a stubborn inflation. International markets also declined after crude oil prices touched $100 a barrel, 30-month high. The Sensex dropped 2.8% and automakers, banks and capital goods makers led decliners.

[R]4:30 PM Mumbai – Stocks in Mumbai plunged sharply after the latest data showed a stubborn inflation. International markets also declined after crude oil prices touched $100 a barrel, 30-month high. The Sensex dropped 2.8% and automakers, banks and capital goods makers led decliners.[/R]

Stocks in Mumbai closed lower after crude oil prices touched $100 a barrel and unrest continue to spread in the Middle East and North Africa. Libya splits as Gaddafi loyalists defend Tripoli but opponents control most of Eastern region.

Fears of another rate hike and fuel price increase dragged the benchmark indexes sharply lower in Mumbai trading.

The latest data on the inflation front were not encouraging either. The wholesale price index at the end of Feb 12 increase to 15.77% from 14.59% in at the end of prior week. Food price inflation in the week increased to 11.49% from the previous week close of 11.05%.

World markets were on the slide on the worries that unrest could spread to more oil producing nations as Bahrain, neighboring Saudi Arabia struggles with protests.

Crude oil closed at 30-month high in New York and London trading.

The Sensex index declined 545.92 or 2.8% to 17,632.41 and Nifty index declined 174.65 to 5,262.70. The indexes opened lower and accelerated the slide in the afternoon trading.

Rupee closed lower to Rs 45.46 to a dollar and gold fell Rs 27 to Rs 20,957 per 10 grams.

Railway budget is expected to keep passenger fair unchanged for the eighth year in a row and announce as many as 100 new train services.

Stock Movers

Stocks fell sharply on the worries that the recent rise in crude oil prices will lead to an increase in interest rates. Banks, capital goods makers and auto companies declined.

Of the stocks in the index, Tata Motors led the decliners with a fall of 6.4% followed by Jaiprakash Associated fell 6.3%, Reliance Capital dropped 5.8% and Reliance Infra and L&T fell 5%.

Of the index stocks, Cairn India led the gainer with a rise of 1.8% followed by increase in Suzlon Energy of 1.6% and Hero Honda of 0.7%.

Hero Honda Motors increased 1.4% after the reports that the company received an approval from Foreign Investment Promotion Board to raise as much as Rs 4,500 crore from international investors.

Auto stocks fell on the worries that fuel prices many be increased in the Union Budget scheduled to be released on Feb 28.

Ashok Leyland, Maruti Suzuki and Bajaj Auto declined at least 2%.

Tata Motors is looking to list Jaguar Land Rover on London Stock Exchange as early as 2012. Bankers contacted by Tata Motors confirmed that the automaker is looking to raise as much as $600 million to repay some of the debt of more than $4 billion.

ICICI Bank declined 4.3% and the bank confirmed an increase of 50 basis points on interest rate for term deposits and raised its base rate by 50 basis points to 8.75%.

Sugar industry stocks fell sharply. Shree Renuka Sugars and Balrampur Chini dropped as much as 7%.