Sensex ends flat; banks, telecom, RIL dip, cement,pharma up

The Sensex closed the session on a flat note, after seeing tussle between bulls and bears. It was higher in the first half of trade on the back of Dubai's bailout plan. But in the last one & half hours, it erased those early gains post correction in banking stocks on likely rate hike in near term (after rise in inflation numbers) and RIL-LyondellBasell (LB) news. The benchmark indices shrugged off positive global cues for the second consecutive day.

Banking, telecom, FMCG, power and metal stocks witnessed selling pressure along with Reliance Industries while buying was seen in capital goods, cement, auto, pharma and select technology stocks along with ONGC.

The major draggers were banking stocks on the reason that rise in inflation may force the Central Bank, RBI (Reserve Bank of India) to hike rates in near term. Indian inflation for the month of November increased 4.78% as against 1.34% in October 2009 and 8.48% in November 2008. It was higher-than-expected as CNBC-TV18 poll expected at 4.09%. Manufacturing inflation has come in as a surprise leading experts to believe that RBI action is almost imminent now.

Saugato Bhattacharya of Axis Bank believes this is a matter of concern, and quite disturbing, "We didn't expect manufacturing inflation to go up this quickly in November," he said. "The RBI would be forced to take this number seriously," he said adding that a degree of tightening is almost imminent now.

According to him, the priority would be to tighten liquidity. He expects the RBI to start doing this through a cash reserve ratio (CRR) hike first. Thereafter, he expects that interest rates would be hiked.

Banking stocks like HDFC Bank and ICICI Bank slipped 1.5% each. Axis Bank, SBI and Kotak Mahindra fell 0.4-0.9%. PNB was down just 0.20%. HDFC declined 0.5%.