Inflation dims rate cut hopes, Sensex takes 203-point hit

The 30-share index opened weak and traded in the negative zone throughout ended the day at 16,677.88 points, down 203 points or 1.20 per cent. Across the Indian market, over 1,700 stocks tanked with investor wealth dropping by Rs 60,000 crore today.

Brokers said sentiment was hit by a rise May inflation dampening widely expected 25 bps rate cut RBI. The strong hopes were built up a series of dismal economic date showing slowing economy. The anticipation of rate cut had received shot in the arm after GDP registered a nine-year low of 6.5 per cent in 2011-12.

However, the hopes were dashed as May inflation rose 7.5 per cent, while food inflation remained high at 10.74 per cent, its third straight month in double-digit zone.

Brokers said an upward revision in March inflation numbers to 7.69 per cent from 6.89 per cent further hit the mood.

"The key issue before RBI is whether to support flagging growth momentum or tackle inflationary pressures," said Sonal Varma, economist, Nomura India.

European and Asian indices traded lower in 1-2 per cent rage after Moody's cut its rating on Spanish government debt by three notches to 'Baa3' - one level above junk - from 'A3'.

Among the 30-share index, Tata Motors was the worst hit losing 4.56 per cent, followed by capital goods major L&T (3.92 pc) and power producer NTPC (3.76 pc) as 25 constituents ended lower.

Bank counters including ICICI Bank, SBI and HDFC Bank lost 1.5-3.5 per cent. Auto majors Tata Motors, Maruti, Bajaj Auto, M&M and Hero MotoCorp also ended on the losing side.

Similarly, the 50-share National Stock Exchange index Nifty fell by 66.70 points, or 1.30 per cent to 5,054.75.

The rupee was last trading at 55.81 against the US dollar, down 13 paise over yesterday's close of 55.68. (MORE)