After a steady upside start to week’s trade, equity indices slipped into the red on Monday afternoon apparently tracking the rise in wholesale price index-linked inflation or WPI to 3.18 percent in April from March’s 2.47 percent as well as anxiety over Karnataka state assembly election verdict due on Tuesday. Dalal Street participants were cautious on account of pollsters predicting a fractured mandate.

Analysts say the 30-share Sensitive Index of Bombay Stock Exchange and 50-scrip Nifty of National Stock Exchange that have been gaining ground once again on steady pick up in liquidity flows via mutual funds traded amid volatility for the last three-four sessions owing to widely expected uncertain outcome in Karnataka.

Analysts expect the market to price in results of Karnataka by Tuesday afternoon once a clear picture is available.

Analysts say the only chance of a breakout rally will be in the wake of a better performance by the BJP.

Pharma, oil and gas or energy stocks, including those of oil marketing companies HPCL, BPCL and Indian Oil Corporation, gained for the first time after several sessions on the government decision to increase prices of petrol and diesel after a gap of 19 days.

The fuel prices were apparently kept on hold by the Centre — despite jump in global crude oil prices — lest it would impact BJP’s prospects in Karnataka.

Brent crude futures rose 12 percent since 23 March to $77 per barrel and is unlikely to ease in neat to medium term in view of the US withdrawal from the multi-national nuclear treaty with Iran, a major oil producing country.

OMCs traded in green after diesel and petrol prices were increased in line with rise in crude oil.

HPCL intra-day was up 1.12 percent at Rs 322.25, BPCL increased to 404.50 or up 1.29 percent while IOC gained marginally 0.15 percent at Rs 169.65.
Stock analysts and economists have sounded alarm over flare up in crude prices as it will fuel price escalation of vegetables, fruits and daily consumption items which will lead to rise in consumer price index inflation.

If the CPI rises, the Reserve Bank of India may review its “neutral” credit policy stance in June.

There is already a buzz that the central bank may increase its policy repurchasing or repo rate at the next meeting of the Monetary Policy Committee due in June.

The minutes of the last MPC meeting held in April had suggested that the six-member panel was veering towards a consensus in favour of 25 basis points or 0.25 percent increase in repo rate from 6 percent to 6.25 percent.

Global entity Morgan Stanley in a report said RBI is expected to begin its “rate hike cycle” from December quarter and may go for three hikes by 2019 raising key policy rate to 6.75 per cent.

However, a significant overshoot of inflation relative to RBI’s target is not likely.

The economic recovery, in addition, will be on a surer footing by Q4 2018 and this may prompt RBI to go for hike.

Analysts say because of turmoil in global crude oil market, not only have bond yields jumped (latest 7.72 percent in domestic debt market) but also resulted in nearly 4 percent drop in the partially convertible rupee even as foreign exchange dealers say the local unit is yet to see bottom against American currency as demand for the greenback is expected to stay on the higher side as foreign portfolio investors of FPIs have stepped up their withdrawals from domestic equity market.

Up to 11 May they had taken away Rs 4,420.42 crore from their equity investments on the back of Rs 9,620.56 crore in April.

The BSE and NSE benchmarks overcame macroeconomic hurdles on huge liquidity support provided by domestic mutual funds as well as institutional investors that have changed their buying strategy to stock specific action not only in large caps (Sensex and Nifty) but also in mid and small caps segments, say analysts.

That, according to analysts, explains why these benchmarks have not seen major falls. DDIs’ net buying in May up to 11 May was Rs 5,360.45 crore on the back of Rs 11,171 crore in April.

The Sensex after rising to the day’s 35,642.72 (+106.93) points high ended at 35,556.71 (+20.92) points up 0.06 percent.

Nifty from 10,834.85 (+28.35) points high ended flat at 10,886.60 points or 0.00 percent. Nifty Bank and Nifty PSU Bank, however, retained their upside momentum as they ended the day at 26,475.15 (+62) points and 2,862.85 (+21) points gaining 0.23 percent and 0.74 percent respectively.

In Sensex 16 shares advanced, 14 declined and one was unchanged. For Nifty the ratio was 22:28.

Top gainers in BSE benchmark included NTPC Rs 171.35, 2.27 per cent; IndusInd Bank Rs 1,918, 1.26 per cent; Infosys Rs 1,194.70, 1.16 per cent; and SBI Rs 252.65, 0.70 per cent.