Frenzied selling in late trade pulled the key benchmark indices to their lowest level in more than 5 months. The 50-unit S&P CNX Nifty slipped below the 5,400 mark. The BSE Sensex slipped below the psychological 18,000 level only to regain that level later. The Sensex was provisionally down 447.39 points or 2.42%, off 540.28 points from the day's high and up 74.94 points from the day's low. The market breadth was weak, in complete contrast with a strong breadth earlier in the day. World stocks rose ahead of the influential US non-farm payroll data due later in the global day. Many Asian markets were closed for the Lunar New Year holidays.

All the thirteen sectoral indices on BSE were in the red. Index heavyweight Reliance Industries (RIL) lost over 2.5%. Software stocks edged lower ahead of the influential US non-farm payroll data due later in the global day today, 4 February 2011. Power shares saw across the board decline on selling pressure with Reliance Infrastructure and Tata Power hitting 52-week lows. Telecoms major Reliance Communications hit a record low.

Intraday volatility was high. The Sensex came off initial lows in early trade. The market recouped all the intraday losses later. The Sensex once again edge lower. The market moved into positive zone in morning trade as Asian stocks rose. The key benchmark indices lost ground soon after striking an intraday high in mid-morning trade as index heavyweight Reliance Industries came off highs. The market extended losses to hit fresh intraday low in early afternoon trade. The market came off lows later. The market weakened again in afternoon trade. The market cut losses in mid-afternoon trade after sliding to fresh day's low. A sell-off in late trade pulled the market to 5-month low.

There are concerns that high inflation will trigger more monetary tightening from the Reserve Bank of India this year. A recent surge in crude oil prices amid unrest in Egypt could add to inflationary pressures. Prime Minister Manmohan Singh today, 4 February 2011, said the country's high inflation posed a "serious threat" to the growth momentum, and was driven by supply-side shortages.

Foreign institutional investors (FIIs) bought shares worth a net Rs 538.71 crore and domestic institutional investors sold shares worth Rs 45.45 crore on Thursday, 3 February 2011, as per the provisional data from the stock exchanges.

On the corporate front, the results announced so far showed that the combined net profit of a total of 1,731 companies rose 22.20% to Rs 73376 crore on 20.40% rise in sales to Rs 612924 crore in Q3 December 2010 over Q3 December 2009.

There are concerns of slowdown in corporate profit growth going ahead. With the rise in key policy rates by the Reserve Bank of India (RBI) recently, interest cost will only rise in the coming quarters that could hurt earnings going forward. If raw material costs keep rising at a fast clip, companies will feel the heat of slowing sales growth and rising cost of operations that could start eating into profit growth.

The next major trigger for the stock market is Union Budget 2011-2012. Investors will watch if the Finance Minister announces measures to rein in inflation and inflationary expectations. The Finance Minister may announce a new road map for the Goods & Services Tax (GST). The original deadline of 1 April 2010 for roll-out of GST has already been missed due to the lack of consensus between the Centre and states on the issue. GST is India's most ambitious indirect tax reform plan, which aims to stitch together a common market by dismantling fiscal barriers between states.

The government may also announce some populist measures in the Budget given that assembly elections are due in Kerala, Tamil Nadu, West Bengal and Assam. In all these states, the Congress is potentially looking to regain power or to retain it.

European stocks were trading firm on Friday as markets awaited key US non-farm payroll data later. The key benchmark indices in UK, Germany and France were up by between 0.25% to 0.49%.

The European Central Bank (ECB) kept interest rates at 1% as forecast on Thursday, 3 February 2011. The bank's decision to leave euro zone rates on hold was the twenty first month running it kept them at the record low level.

Asian markets were higher on Friday, 4 February 2011, with Japanese stocks leading the way, as a proposed merger between Nippon Steel Corp. and Sumitomo Metal Industries lifted hopes for more consolidation. The Nikkei 225 average ended 1.08% higher. In Australia, the All Ordinaries index rose 0.8%, after the Reserve Bank of Australia signaled that catastrophic floods in December and January hadn't damped its otherwise buoyant outlook for the commodity-rich Australian economy. Indonesia's Jakarta Composite index rose 0.25%, reversing initial losses. Markets in China, Hong Kong, South Korea, Taiwan and Singapore were shut for the Lunar New Year holidays.

Bank Indonesia on Friday raised its benchmark interest rate by 0.25 basis points to 6.75% to tackle inflationary pressures, according to reports. The rate adjustment is the central bank's first change after it cut rates by in August 2009.

US stocks closed higher on Thursday, 3 February 2011, following upbeat readings on January US retail sales and non-manufacturing activity. The Dow Jones Industrial Average rose 20.29 points, or 0.17%, to close at 12062.2, the highest close since the middle of June 2008. The Nasdaq Composite edged up 4.32, or 0.16%, to 2753.88 and the Standard & Poor's 500-stock index added 3.07, or 0.24%, to close at 1307.10.

Trading in US index futures indicated that the Dow could rise 7 points at the opening bell on Friday, 4 February 2011.

The Institute for Supply Management reported that its non-manufacturing index rose to 59.4 in January 2011 from 57.1 in December 2010. In a speech, US Federal Reserve Chairman Ben Bernanke acknowledged in an otherwise cautious outlook that the economic recovery appears to have strengthened in recent months.

Global investors are awaiting the influential US non-farm payroll data due later in the global day today, 4 February 2011. Economists expect addition of 136,000 jobs in January, up from 103,000 added in December 2010.

Global food prices reached a new record peak in January, the UN Food and Agriculture Organization (FAO) warned on Thursday, 3 February 2011, in an update of its Food Price Index. According to FAO, food prices have been steadily rising since the last seven months. The food price index averaged 231 points in January 2011, up 3.4% from December 2010. The rise, the highest since FAO started measuring food prices in 1990, was mainly due to surging international wheat and maize prices amid tightening supplies.

As per provisional closing, the BSE 30-share Sensex was down 447.39 points or 2.42% to 18,001.92. The index lost 522.33 points at the day's low of 17,926.98 in late trade, its lowest level since 31 August 2010. The index gained 92.89 points at the day's high of 18,542.20 in mid-morning trade

The S&P CNX Nifty was down 137.80 points or 2.49% to 5,388.95. The Nifty slipped to 5,369.05 in late trade, its lowest level since 31 August 2010.

The market breadth, indicating the health of the market was weak, in complete contrast with a strong breadth earlier in the day. On BSE, 2,020 shares declined while 903 shares advanced. A total of 91 shares remained unchanged.

The total turnover on the BSE amounted to Rs 3659 crore

Bajaj Auto was the lone gainer from the 30-member Sensex pack. India's second largest bike maker by sales Bajaj Auto advanced 0.95% to Rs 1223. Total sales rose 18% to 3.13 lakh units in January 2011 over January 2010. The company announced January sales figures during market hours on Wednesday, 2 February 2011.

India's largest tractor and utility vehicles maker Mahindra & Mahindra (M&M) slumped 4.30% to Rs 675.50 and was the top loser from the Sensex pack. The company announces Q3 result on Wednesday, 9 February 2011. Total sales rose 21.7% to 57,217 units in January 2011 over January 2010, aided by 21.8% growth in automotive sales to 36,718 units and 21.4% growth in tractor sales to 20,499 units.

India's largest bike maker by sales Hero Honda Motors fell 2.84%. Net profit fell almost 20% to Rs 429 crore on 34.13% increase in total income to Rs 5223.69 crore in Q3 December 2010 over Q3 December 2009. The result was announced during trading hours on Wednesday, 2 February 2011.

India's largest car maker by sales Maruti Suzuki India slipped 2.28%. Total vehicle sales rose 14.7% to Rs 1.09 lakh units in January 2011 over January 2010. Domestic sales rose 23.8% to 1 lakh units in January 2011 over January 2010. The company announced the monthly sales data during market hours on Tuesday, 1 February 2011.

India's top truck maker by sales Tata Motors declined 1.22%. The company announces Q3 result on Friday, 11 February 2011. The company's total sales rose 15% to 75,423 units in January 2011 over January 2010.

Index heavyweight Reliance Industries (RIL) lost 2.54% to Rs 919.50, off day's high of Rs 946. RIL may reportedly challenge Chevron Corp's bid for Atlas Energy Inc. RIL is said to have hired Perella Weinberg Partners and Kirkland & Ellis to evaluate its options. Last April, Reliance agreed to pay Atlas $1.7 billion to form a joint venture and own 40% of Atlas's Marcellus Shale operations in the eastern United States. In November 2010, Chevron then announced plans to buy Atlas for $3.2 billion.

India's largest oil exploration firm by sales ONGC fell 0.25%. The company will reportedly set up a second wind power project in Rajasthan after diversifying into wind energy two years back. The company's board has reportedly decided to spend Rs 818 crore and set up a 100-megawatt wind power project in Rajasthan.

Software stocks edged lower ahead of the influential US non-farm payroll data due later in the global day today, 4 February 2011. US is the key market for Indian IT firms. India's third largest IT exporter by sales Wipro shed 1.58%. India's second largest software services exporter Infosys slipped 2.37% and India's largest software services exporter TCS fell 2.69%.

Bank stocks declined on concerns higher cost of funds may adversely impact net interest margin. India's second largest private sector bank by net profit HDFC Bank slipped 2.28%. India's largest private sector bank by net profit ICICI Bank shed 3.32%. India's biggest commercial bank in terms of branch network, State Bank of India, fell 0.13%, after Wednesday's over 3% gain.

India's top realty developer by sales DLF lost 3.26% on profit booking. The DLF stock had gained close to 7% on Thursday, 3 February 2011 on reports the company plans to make an average quarterly investment of Rs 300-400 crore over the next couple of quarters to acquire land in areas such as New Gurgaon and Chandigarh to consolidate its land holding.

Power shares saw across the board decline. Reliance Infrastructure lost 4.04% to Rs 676.05 after sliding to a 52-week low of Rs 672. Tata Power fell 3.80% to Rs 1181 after recording a 52-week low of Rs 1177. NTPC was down 2.74% to Rs 177.20.

Larsen & Toubro (down 3.70%), ITC (down 3.57%), and HDFC (down 3.39%), edged lower from the Sensex pack.

India's second largest listed cellular services provider by sales Reliance Communications slumped 3.09% to Rs 114.40 after sliding to a record low of Rs 114.

In macro news, food inflation jumped to 17.05% for the week ended 22 January 2011, its highest level since 25 December 2010. Food inflation for the previous week stood at 15.57%. The fuel price index climbed 11.61%, higher that previous week's 10.87% rise. The primary articles index for the week ended 22 January 2011 rose to 18.44% from previous week's 17.26% rise.

Business activity in the country's services sector grew at a faster clip in January 2011 than in December 2010, boosted by new orders and expectations of solid growth, but costs also soared, a survey showed on Thursday, 3 February 2011. The HSBC Markit Business Activity Index, based on a survey of around 400 firms, rose to 58.1 in January 2011 after falling to 57.7 in December 2010 from November's four-month high.

Finance Minister Pranab Mukherjee on Wednesday, 2 February 2011, said stock markets have seen volatility over the past few days due to selling pressure from foreign institutional investors but the government still expects 8.5% economic growth in the current financial year ending March 2011. There could fluctuations in inflationary pressures over the next three months or so, but the overall trend for prices is to moderate, Mukherjee said. Mukherjee said on Thursday that the rise in food price index reading is part of inflationary fluctuations, referring to the latest weekly food inflation data.

The Finance Minister on Wednesday said manufacturing activity is on a strong growth path, in spite of the monthly fluctuations in the Index of Industrial Production witnessed in recent months, he said. Mukherjee also said fiscal deficit will be lower than the government's earlier projection of 5.5% for the year ending March 2011.

Exports in December rose an annual 36.4% to $22.5 billion, while imports for the month fell 11.1% on the year to $25.1 billion, the latest government data showed. The trade deficit in December narrowed to $2.6 billion compared with $8.9 billion in November. Exports rose an annual 29.5% to $164.7 billion in April-December 2010.

The manufacturing sector expanded at a slightly faster pace in January 2011 on the back of output and new order growth but inflationary pressures persisted, a business survey showed. The HSBC Markit Purchasing Managers' Index, based on a survey of around 500 companies, edged up to 56.8 in January from 56.7 in December. That was the 22nd consecutive month the key index of manufacturing has been above the reading of 50 that divides growth from contraction.

To control surging inflation, the Reserve Bank of India (RBI) at its quarterly policy review on 25 January 2011 raised repo rate by 25 basis points to 6.5% and the reverse repo rate by 25 basis points to 5.5%. Repo rate is the rate at which the RBI lends money to banks. Reverse repo is the rate at which RBI borrows funds from banks. The central bank held the cash reserve ratio steady at 6%.

"As high food inflation persists, the prospect of it spilling over to the general inflation process is rapidly becoming a reality," Reserve Bank of India (RBI) Governor Subbarao said in the policy document released on Tuesday, 25 January 2011. The RBI lifted its headline inflation projection for March 2011 to 7% from 5.5% previously. The RBI stuck with its 8.5% GDP growth forecast for the current fiscal year, but with an upside bias.

The combined risks from inflation, the high current account deficit (CAD) and fiscal situation contribute to an increase in uncertainty about economic stability that consumers and investors will have to deal with, RBI said. To the extent that this deters consumption and investment decisions, growth may be impacted. While slower growth may contribute to some dampening of inflation and a narrowing of the CAD, it can also have significant impact on capital inflows, asset prices and fiscal consolidation, thereby aggravating some of the risks that have already been identified, it said.

Capital flows, which so far have been broadly sufficient to finance the CAD, may be adversely affected, the RBI said. Faster than expected global recovery may enhance the attractiveness of investment opportunities in advanced economies, which may impact capital flows to India. This may increase the vulnerability of India's external sector. Hence, the composition of capital inflows needs to shift towards longer-term commitments such as foreign direct investment (FDI), the RBI said.