Industrial output growth rose by a better-than-expected at 7.3% y-o-y in March, from 3.7% in February, led by a sharp rebound in capital goods. Nomura's Sonal Varma in the research note said, "the IIP data reaffirms inflation's domination over growth as the top policy priority, as domestic fuel price hikes are due, resulting in higher inflation" Nomura expects the Reserve Bank of India to hike its repo rates by a further 50 bps to 7.75% by year-end.
Ashish Chaturmohta, Vice President (Derivatives & Technical Analyst) from IIFL Wealth said, Nifty was trading in the 5,450 and 55500 for the past week, long traders were waiting on the sidelines to sell, and most of the traders liquidated the long positions after the IIP data was out as they got a good price to exit." Ashish also observed short build up of positions which put further pressure on the markets.
Also election results on Friday will determine the strength of the ruling coalition party Congress which will also determine market direction.
Asian share markets also tumbled on Thursday after a second largest sell-off in commodities in less than a week pushed investors away from riskier assets and boosted the Dollar. The Dollar Index surged to a one month high of 73.5. Japan's benchmark Nikkei 225 down 1.5%, Hong Kong's Hang Seng and Shanghai Composite down over 1% each.
Back in India All the sectoral indices ended in the red.
Markets extended losses in the afternoon trades due to losses in metal and financial shares as inflation continued to remain high and industrial output data showed a sharp month on month rise raising expectations that RBI will tighten further.
The Nifty opened in the red and touched a high of 5,537 after the IIP data but the recovery in the mid-morning session was short lived.
High week on week inflation at 7.7% and uncertainty over outcome of election results frayed investors' nerves taking the index to a low of 5,476.
Selling pressure was witnessed in the frontline stocks ICICI Bank, HDFC, Reliance Industries and TCS dragging the benchmark Sensex down by over 100
points.
The S&P CNX Nifty closed near day's low at 5846, down 79 points and the Sensex slipped 249 points, at 18,336.
BSE metal index was down 3% following the rout in the global metal prices as investors scaled back bets on commodities. Hindalco Industries and Sterlite Industries fell over 5% each, and Sesa Goa skid 3.8%.
BSE Capital goods index plummeted 1.4% shrugging of 12.9% surge compared to a contraction of 18.4% last month. Nomura in the research note said, "Substantial part of the capital goods rebound was led by well-offshore platforms, which are volatile and can easily reverse." ABB was off 2.8%, Reliance Industrial Infra slipped 2% and Areva T&D was down 1.9%.
BSE Bankex continued to remain weak, down 1.4% on expectations of further rate hike. Kotak Mahindra Bank fell 2.7%, Yes Bank declined 3% and Axis Bank was off 1.9%.
Top losers on the Sensex were HDFC, down 2.7%, JP Associates and TCS were off 2.3% each. Only three components on the Sensex were trading in the green, ONGC, up 0.6%, DLF advanced 0.2% and Hindustan Unilever was up 0.5%.
From the broader markets space, the madcap and the smallcap indices were down around 1% each. Market breadth was negative, 1848 stocks declined for 943 stocks which advanced.