Sensex, Nifty edge down on profit taking, inflation worries

On Friday, the benchmark indices experienced a decline but still managed to maintain their weekly gains, despite heavy buying from foreign institutional investors. The investors, however, grew more cautious due to rising inflationary pressures and renewed geopolitical tensions, leading them to prefer booking profits following the recent market bounce-back.

The October retail inflation reached 6.09 per cent, surpassing the RBI's upper tolerance threshold of 6 per cent. This development intensified concerns over the interest-rate outlook, as it weighed particularly on rate-sensitive sectors, prompting investors to take profits following sharp gains in recent sessions. Consequently, the S&P BSE Sensex fell by 318.56 points (0.39 per cent) to 81,592.45, while the Nifty declined by 155.05 points (0.61 per cent) to 25,144.30.

The Bank Nifty also dropped by 484.40 points (0.79 per cent) to 61,034.10. For the week, the Nifty 50 and Sensex had previously risen by 0.5 per cent and 0.7 per cent, respectively, after recording their strongest weekly gains in over six years. However, this week's decline came as foreign portfolio investors bought an additional ₹5,253.98 crore on the National Stock Exchange.

Among the sectors, financial services, private banks, automobiles, and realty suffered losses on Friday, while energy and healthcare showed gains. Experts caution that the current market correction indicates that investors are becoming increasingly uneasy about the combination of elevated inflation, currency depreciation, and rising crude prices.

The potential second-order impact of higher energy prices on corporate margins, consumption, and India's current account deficit further adds to the cautious sentiment, as global uncertainties amplify the cautious approach. As inflation moves beyond the RBI's comfort band, the expectation of monetary easing may be pushed further out, potentially limiting the market's scope for a sustained recovery.