Profit booking takes toll

Thu, 25 Nov Closing

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After staying above the dotted line for most part of the morning session, profit booking took toll in the ensuing hours as the indices oscillated to either side of yesterday's close. However, selling pressure intensified in the final hour and the markets closed well into the red. While the BSE Sensex closed lower by around 142 points (down 1%), the NSE Nifty lost around 66 points (down 1%). The BSE Midcap and the BSE Smallcap were not spared either as they racked losses of 2% each. Barring IT stocks, selling was witnessed across sectors.

As regards global markets, Asian indices closed mixed today while European indices have opened in the green. The rupee was trading at Rs 45.65 to the dollar at the time of writing.

Steel stocks closed in the red today and the key losers here included SAIL, Tata Steel and JSW Steel. As per a leading business daily, Indian steel companies are mulling a price increase in December on the back of strong domestic demand and better international prices. Most steel players had undertaken price cuts in October and November. But with the demand picking up most are envisaging going in for hikes in the last month of 2010. Strong demand from the auto and consumer durables sector has further strengthened their case. Not just that, the construction sector is also starting to buy steel post the lull in activity during the monsoon months. Thus, end user industries of steel such as auto are likely to face margin pressure in the coming months as input costs rise.

As per a leading business daily, India's annual food inflation eased further to 10.15% for the week ended Nov 13. This is after having fallen sharply by two percentage points to 10.3% the week earlier. RBI's tightening monetary policy and rise in the supply of food grains seems to have eased some pressure. That said, fuel and power inflation remained unchanged at 10.57%. It must be noted that the RBI recently once again raised the rates at which it borrows from (reverse repo) and lends to (repo) banks by 0.25% each.

The RBI has stated key reasons why it believes the risks to inflation to be largely on the upside. One because further monetary easing in advanced economies may take commodity prices even higher. Two, high food inflation in domestic market will continue to weigh on overall inflation. And finally, with the domestic capacity utilisation slowly approaching the pre-crisis peak in many sectors, demand side pressures may accentuate. Thus the problem of inflation is for here to stay, at least temporarily.