Sensex tumbles 460 points, Nifty slips below 25,200 as inflation fuels RBI rate hike fears

New Delhi: Indian equity benchmarks Sensex and Nifty declined sharply in early trade on Friday as investors booked profits following a three-session rally, while a surge in retail inflation beyond the Reserve Bank of India’s (RBI) tolerance ceiling raised concerns over a possible interest rate hike in December.

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The 30-share BSE Sensex dropped 460 points to 81,441.17 in early deals, while the broader NSE Nifty fell 179.05 points to 25,119.50.

Among Sensex constituents, Mahindra & Mahindra, HDFC Bank, InterGlobe Aviation, Trent, Bharat Electronics and Bajaj Finserv were the major laggards. Tech Mahindra, Sun Pharma, HCL Technologies and Hindustan Unilever bucked the trend to trade higher.

Inflation surge dampens sentiment

Investor sentiment weakened after India’s retail inflation accelerated to 6.09 percent in October from 5.54 percent in September, breaching the RBI’s upper tolerance limit of 6 percent for the first time in two years.

The increase was driven largely by rising food and beverage prices, restaurant services and transportation costs. Food inflation climbed to 8.94 percent in October from 7.74 percent a month earlier, according to data released by the Ministry of Statistics and Programme Implementation.

The higher-than-expected inflation reading has strengthened expectations that the RBI could consider raising its benchmark policy rate at its December 4 monetary policy meeting.

“India’s retail inflation rose to 6.09 percent in October from 5.54 per cent in September, its highest level in two years and above the RBI’s 6 per cent upper tolerance limit, with food inflation climbing to 8.94 per cent. The data keeps the rate outlook hawkish ahead of the RBI’s December 4 policy meeting and leaves the market vulnerable to consolidation after its sharp recovery,” said Ponmudi R, CEO of Enrich Money.

Global markets trade mixed

Asian markets displayed mixed trends, with South Korea’s Kospi and Hong Kong’s Hang Seng trading lower, while Japan’s Nikkei 225 and China’s Shanghai Composite registered gains.

US equity markets ended Thursday’s session in negative territory, adding to the cautious sentiment across global markets.

Meanwhile, foreign institutional investors (FIIs) remained net buyers of Indian equities, purchasing shares worth Rs 7,830.60 crore on Thursday, according to exchange data.

In the commodities market, Brent crude futures declined 0.44 percent to USD 95.40 per barrel.

Markets snap three-day winning streak

The early decline came after three consecutive sessions of gains in domestic equities.

On Thursday, the Sensex had edged up 31.61 points, or 0.04 percent, to close at 81,911.01, while the Nifty gained 44.30 points, or 0.18 percent, to settle at 25,299.35.

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Market participants are expected to closely track inflation developments, foreign fund flows and signals from the RBI ahead of its December monetary policy decision.

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