Inflation worries spook mkts; Nifty ends below 5700

Rising inflation concerns and likely slow down in economic growth spooked Indian equities on Tuesday and sent the Nifty below the 5700-mark at close, dragged down especially by financials, which sensed that there will be rate hikes in next policy meet as well.

Traded turnover was far higher than the average turnover seen in last few sessions, mainly ahead of derivates contracts expiry on Thursday. Total traded turnover reported by exchanges at Rs 2,22,692.3 crore, including Rs 2,06,028.02 crore from F&O segment. It showed that lot of shorts triggered in rate sensitives - particularly in private banks and mainly ahead of expiry.

The Reserve Bank of India upped the repo--the rate at which it lends to banks -- and reverse repo--the rate at which it borrows from banks--rates by 25 bps each to 6.5% & 5.5%, respectively.

That was completely in-line with the street expectations but the central bank warned that there would be likely further hike in key rates in next policy, by revising inflation forecast to 7% versus 5.5%. The central bank too expects GDP growth rate may decline in FY12, which triggered more sell-off today.

Inflation is likely to be a global concern in 2011 and emerging markets are facing significant inflationary pressures, says RBI Governor D Subbarao. "We have seen signs of food inflation spilling over to non food side." He said, "Inflation expected to moderate from 1st quarter of 2012."

Market experts were expecting that beyond 25 basis points, RBI would hike maximum 50 bps and not more. Even Subbarao said, "We did contemplate 50 bps hike in today's policy. The challenge is to restrain demand side inflationary pressure and support supply side effects."