PM’s inflation remark sends stocks reeling

AT NEW 5-MONTH LOW

Sensex Has Lost 12.2% This Year & Is Down 14.3% From Nov 5 Peak

INDIAN shares sank to their lowest since August after Prime Minister Manmohan Singh said what many in the markets feared—that soaring prices could stall the economic growth engine.
    Reliance Industries, ICICI Bank and cigarette maker ITC led the crash that made Indian stock indices the worst performer in the globe, behind civil strife-torn Egypt.
    All stocks in the Sensex, barring Bajaj Auto, tumbled, taking the benchmark index' loss this year to 12.2%, and to 14.3% from its November 5 peak. Egypt, where there's a revolt against the 30-year-old Hosni Mubarak government, is down 20%.
    "If inflation continues to rise, we may see further hardening of interest rates which are already high," said Kotak Securities Managing Director D Kannan. "Investors do not find it sensible to take risk in the current volatile market when they can earn assured returns of 10-12% from bank deposits."
    The Sensex lost 2.4% to close at 18,008 on Friday. All its 30 shares have fallen this year, with Hero Honda topping the list at 23% and Tata Consultancy the least at 1.5%. Nearly 2,003 of the 2,982 traded shares fell. The prime minister's comments rattled investors, some of whom have been cautioning about weakening macroeconomic fundamentals of the nation.
    "Inflation is something which needs to be tackled with great urgency," Singh told government officials in the Capital. The Indian economy "has been on a high growth trajectory, but inflation poses a serious threat to the growth momentum." Realty and consumer goods were the worst hit, tumbling over 3% with index constituents such as ITC sliding. Inflation takes a substantial portion of their incomes, leaving little to be spent on consumption. Also, interest rates may be raised at least 100 basis points this year to cool prices, economists estimate.