Sensex ignores high inflation, gains 356 pts

Ignoring high inflation levels, Dalal Street rose 2.2 per cent on Friday, posting its biggest weekly gain in five months.

Ignoring high inflation levels, Dalal Street rose 2.2 per cent on Friday, posting its biggest weekly gain in five months. With funds buying into beaten down stocks ahead of the quarterly results, the 30-share BSE Sensex ended 2.22 per cent up, or 355.73 points, at 16,371.29. The benchmark index rose 9.2 per cent on the week, its first rise in four weeks, and the biggest gain since the week to October 28, 2007, when it rose 9.6 per cent.

According to dealers, the rise in annual inflation to a 14-month high momentarily halted the rally, with traders worried the government would push for steps to rein in prices. But the market came back strongly towards the end. The annual inflation rate at 6.68 per cent was the highest reading since January 27 last year when it hit a two-year high of 6.69 per cent.

The data was way above analysts forecasts of 5.96 per cent and sent the BSE Sensex down as much 0.82 per cent at one stage as rising price pressures thwarted hopes the central bank would cut rates next month to boost economic growth. “The market was already expecting inflation to be more than 6 percent…the only thing is some people expected a rate cut, which is now a distant possibility,” said a fund manager.

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Tata Steel Ltd jumped 9.5 per cent as investors felt government intervention to check steel prices would not affect the world’s No 6 steelmaker that now gets more than two-thirds of its revenue from overseas. Ahead of the inflation data, the government withdrew tax refund schemes for exports of steel and cement to increase local supplies and to check domestic prices of both commodities.

Reliance Industries and engineering giant Larsen & Toubro Ltd led the gains. “Both foreign and domestic funds have been buying aggressively since morning. Only when the inflation figure came we saw a pause but then it resumed,” said a dealer.