As rate cut hopes fade, Sensex dips

Indian stocks led by banks and capital goods fell on Thursday, with Sensex shedding nearly 203 points as inflation, which rose to 7.5% in May, dampened hopes of a rate cut by Reserve Bank next week.

Indian stocks led by banks and capital goods fell on Thursday, with Sensex shedding nearly 203 points as inflation, which rose to 7.5% in May, dampened hopes of a rate cut by Reserve Bank next week.

HT Image

The 30-share index opened weak amid negative trends from global markets as Moody's cut its rating on Spanish government debt by three notches.

With WPI inflation rising to 7.5% in May and food inflation going up to 10.74% from 10.49% in the previous month dashing hopes of a rate cut by RBI, hectic selling emerged in interest-rate sensitive counters pulling Sensex down to 16,658.98. The index finally closed at 16,677.88, down 1.20%.

Brokers said inflation numbers dimmed hopes of a minimum 25 bps cut by RBI in short-term lending rate that currently stands at 8%. Investor wealth dropped by Rs 60,000 crore today with 6 out of 10 stocks ending lower in market.

"The key issue before RBI is whether to support flagging growth momentum or tackle inflationary pressures due to a weak rupee and high food prices," said Sonal Varma, economist, Nomura India.

Among the 30-share index, Tata Motors was the worst hit losing 4.56%, followed by capital goods major L&T (3.92 pc) and power producer NTPC (3.76 pc) as 25 constituents ended lower.

Bank counters including ICICI Bank, SBI and HDFC Bank lost 1.5-3.5%. Auto majors Tata Motors, Maruti, Bajaj Auto, M&M and Hero MotoCorp also ended on the losing side.

Similarly, the broad-based National Stock Exchange index Nifty fell by 66.70 points, or 1.30% to 5,054.75.

The rupee was last trading at 55.81 against the US dollar, down 13 paise over Wednesday's close of 55.68.