Nifty butchered, manages to close above 5500; realty cracks

Indian equities closed in the red on Friday - incidentally for the third consecutive day - as foreign investors pulled out some money by selling shares for the second consecutive day. The sell-off across sectors during the day sent the Nifty well below 5500-mark for the first time since September 6, 2010, but buying by domestic institutions at lower levels due to an oversold situation and support from ONGC, ICICI Bank, Bharti & HUL helped the index to hold the the psychologically important level at close.

Deven Choksey, MD, KR Choksey Shares & Securities said that it was a clear case of FIIs selling and investing in dollar assets. He said a close below 5550 could probably take the Nifty further down to 5430 levels.

Gautam Shah of JM Financial too warns that Nifty may slip to 5430 and Sensex to 18000 level. Shah said that the Nifty breaching below 5630 mark is not at all healthy. ''It had shown first sign of weakness below 6040,'' he reiterated.

Inflation worries and likely slowdown in growth of India could be reasons behind this sell-off by FIIs for last three days. They also worried that companies' earnings growth may be affected going forward on likely rate hikes in current calendar year, which hinted by RBI in its quarterly monetary policy on Tuesday, when the central bank had hiked repo and reverse repo rates by 25 basis points each.

But more significant point was the inflation - RBI revised that to 7% from earlier 5.5% it had predicted in November 2010. So experts as well as bankers believe that more tightening measures are likely from RBI in 2011 to control rising inflation.

Adrian Mowat, Chief Asian and EM Equity Strategist at JPMorgan warns that the weakness is likely to continue in emerging markets (EMs) for a while. According to him, global investors are shifting money out of EMs to domestic markets.