Sensex falls 285 pts on rising inflation, rate hike

The Bombay Stock Exchange benchmark index Sensex dropped 285.02 points following reports that the food inflation has moved up marginally to 15.57 per cent for the week ended January 15, from 15.52 per cent in the previous week.

The gauge had lost 182 points in the previous session, after the Reserve Bank of India had increased key rates for the seventh time since last March, revising upwards inflation forecast to 7 per cent for this fiscal end from 5.5 per cent.

Besides, investors and funds unwinding their pending positions on the last day of the current month`s settlement in the derivatives segment also effected the trading sentiment.

After a higher opening, the Sensex remained volatile throughout the session, touching a high of 19,086.69 and a low of 18,656.05.

The broad-based National Stock Exchange index Nifty dipped below 5,600 points level before closing 83.10 points down to 5,604.30, with stocks of banking and interest related sectors suffering the most.

Brokers said the initial gains got erased as overseas investors felt that the near-term outlook of the economic growth looked far from promising, and tried to find better prospects elsewhere.

They said further rise in food inflation this week matching with the RBI forecast raised concerns among investors of a further hike in policy rates to tame overall price rise.

In 30 BSE benchmark components, 28 stocks fell, while Tata Consultancy Services and Tata Motors ended with gains.

The two most-heaviest, with 23 per cent weightage on the index, fell -- Reliance Industries dropped by Rs 15.55 to Rs 943 and Infosys Technologies by Rs 58.90 to 3,195.20.

With the selling pressure spreading over a wide-front, the midcap index lost 1.88 per cent to 7,087.16 and smallcap index by 1.35 per cent to 8,864.23.