Inflation Spikes, Stocks Decline

123jump.com Staff
21 Aug, 2008
New York City

Wholesale inflation index, measured on a rolling weekly basis for the annual period surged to 12.63% at the end of first week in August. Sustain rise in crude oil and food prices contributed to the increase in index. Economists expect the inflation index to rise to 14% by the end of the year before cooling off to 9% or lower. The inflation news dragged stocks sharply lower on the worries that monetary policy may be tightened more to curb the rising demand.

[R]10:00AM New York, 7:30 PM Mumbai - India’s inflation accelerated to 12.63% in the year to August.[/R]

Market Sentiment

In Mumbai, the BSE 30-share Sensex declined 2.96% or 434.50 to 14,243.73, and CNX Nifty fell 2.99% or 131.90 to 4,283.85. Of the stocks traded on the BSE, 733 rose, 1,915 declined and 65 were unchanged.

Trading Statistics

Daily turnover on BSE was 4,081 crore rupees from 4,254.87 crore rupees yesterday.

State Bank of India declined 7%, DLF fell 5.5% and Reliance Infrastructure and ICICI Bank dropped 5% each.

Inflation Surges to 12.63%

Wholesale price index for the year ending in August 9 surged to 12.63% from 12.44% aat the end of previous week. Steady rise in energy, food and manufactured goods prices lifted the index to a 16-year high. Economists are expecting the inflation to rise near 14% in the final three months of the year. The sharp rise in inflation may continue as the government approved 21% hike wages of government employees.

According to the report, the inflation reading for the week ending June 14 was revised to 11.80% from 11.42%. Indian authorities forecast that the inflation rate will increase to 13% and start moderating from December before stabilizing at 8% to 9% at the end of the fiscal year ending March.

The Reserve Bank of India will have to stay focused on controlling demand as the economy continues to struggle to increase the supply. Agriculture productivity increase is anemic and less than 2% and manufacturing sector is productivity is growing but at a slow pace of below 5%.

Oil Prices Soar to $119 on Rising Tensions

Crude oil futures prices rose as much as $4 a barrel above $119 as Russia and U.S. spar over the latest battleground, Georgia. The U.S. will like Russia to leave the occupied territory of Georgia and Russia cited the U.S. occupation of Iraq for more than three years. The crude oil and natural gas supplies to Germany and other nations may be threatened if Russia blocks the passage through Georgia.

The oil prices rose despite a report from the U.S. Energy Department that showed that oil inventories rose the most since March 2001. A weaker dollar also contributed to the price increase.

Gainers & Losers

Stocks in India fell on the rising inflation and an outlook for elevated inflation for the rest of the year. Weaker Asian markets also adversely impacted on investor sentiment.

Realty stocks plummeted as investors fear a rise in rates. Indiabulls Real Estate fell 7.36% to 292.60 rupees, DLF declined 5.55% to 481.60 rupees and Unitech shed 5.35% to 160.10 rupees.

Similarly financial stocks declined as well. State Bank of India shed 7.1% to 1,342.25 rupees, ICICI Bank declined 5.19% to 643.10 rupees, and HDFC Bank plunged 5.82% to 1,165.80 rupees.

Power stocks fell. NTPC slid 5.68% to 173.50 rupees, Reliance Infrastructure slipped 5.45% to 954.70 rupees, Reliance Power climbed 3.21% to 155.45 rupees, PowerGrid Corporation of India declined 1.02% to 92.40 rupees and Tata Power Company edged down 0.07% to 1,023.65 rupees.

Capital goods stocks declined. Bharat Heavy Electricals shed 3.75% to 1,669.85 rupees, Suzlon Energy slipped 4.62% to 225.15 rupees and Larsen & Toubro plummeted 3.19% to 2,628.15 rupees.

Ranbaxy Laboratories increased 1.53% to 513.40 rupees.

Tata Steel fell 2.63% to 589.30 rupees after. Anglo-Dutch steelmaker Corus reported yesterday that it has entered into negotiations with Klesch & Company to sell its two aluminum smelters in the Netherlands and Germany.

Tata Motors tumbled 1.44% to 417.95 rupees after reporting yesterday that the company will forgo its 3000 crore rupees convertible preference share issue and instead raise the amount through selling investments to raise $2.3 billion for the acquisition of Jaguar and Land Rover from Ford Motor Company.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 99.48 or 0.77% to 12,752.21, Hang Seng index in Hong Kong decreased 539.20 or 2.58% closed to 20,392.06. ASX 200 index in Australia decreased 54.30 or 1.10% to close 4,875.20. The KL Composite index in Malaysia decreased 1.78 or 0.17% closed to 1,071.43.

The Kospi Index in South Korea decreased 28.12 or 1.83% to close at 1,512.59, SET index in Thailand closed lower 13.52 or 1.96% to 676.53 and JSE Index in Indonesia increased 18.55 or 0.90% to 2,088.25. The Sensex index in India decreased 434.50 or 2.96% closed to 14,243.73.