Sensex closes 29 points down over RBI rate hike fears

The Bombay Stock Exchange Reuters

The BSE benchmark Sensex today took a breather and closed 29 points lower as rising food inflation evoked worries of a further rate hike by the RBI this month.

Cutting short two days of consecutive gains, the Bombay Stock Exchange's 30-share barometer ended the session at 18,208.78, down by 29.53 points, or 0.16%.

Firm cues from Asian and European markets also failed to boost the Sensex, owing to uneasiness over high valuations. The main index fluctuated between a high of 18,316.32 and a low of 18,206.50.

On a weekly basis, the Sensex recorded a gain of 1.23%.

In a choppy session, the wide-based 50-share Nifty Index of the National Stock Exchange finished the session at 5,479.40, down 0.12%.

"The Nifty struggled to sustain above the 5,500 levels as food and fuel inflation inched higher," IIFL Vice-President (Research) Amar Ambani said.

Reliance Industries, which holds the maximum weight in the Sensex, dropped 1.23% to close at Rs925.60.

Heavy profit-booking was witnessed on metal counters, with Jindal Steel losing 2.10% -- the most in the Sensex scrips. Sterlite Industries declined 1.2% and Hindalco 1.47%.

ICICI Bank slipped 0.32%, HDFC 0.23%, ITC 0.52% and L&T by 0.36%.

Brokers said that fund houses were cautious ahead of the critical US monthly payrolls figures and after the rise in food inflation.

The elevated inflation means real interest rates remain decidedly negative, discouraging saving and disrupting investment decisions.

After declining for two consecutive weeks, food inflation inched up marginally to 10.86% for the seven days ended August 31 from 10.05% during the earlier week, raising concerns that the Reserve Bank may further hike its policy rates.

The RBI may hike the repo rate by 25 basis points during its meeting on September 16, Moody's Analytics said in a note.

Jaiprakash Associates dropped 1.5%, TCS 0.74% and Tata Power 0.73%.

However, a rise in auto, realty and IT stocks cushioned the losses suffered by metal, oil & gas and consumer goods.

Snapping its three-day losing streak, Hero Honda bounced back and was the top performer in Sensex pack. The two-wheeler major ended with a gain of 2.14%.

Anil Ambani-led R-Infra rose 1.6%, Bharti Airtel by 1.6% and ONGC by 1.17%.

IT bellwether Infosys advanced 0.76%, DLF 0.7%, M&M 0.5% and Cipla 0.66%.

"Outlook for market is better looking from the domestic perspective, but cues from overseas will have an impact on our markets in the coming week," Geojit BNP Paribas Research Head Alex K Mathews said.