The key benchmark indices slumped to five month lows in mid-afternoon trade on macroeconomic worries arising from higher crude oil prices, with the sentiment edgy also due to substantial selling by foreign funds last month. The BSE 30-share Sensex was down 278.97 points or 1.52%, off close to 405 points from the day's high and up close to 30 points from the day's low. Indian stocks underperformed mostly higher global equities. World stocks rose as worries over the unrest in Egypt receded.

Index heavyweight Reliance Industries (RIL) extended initial losses. Realty, auto and FMCG stocks declined. Mid and small-cap indices on BSE outperformed the Sensex. The market breadth was weak, in contrast with positive breadth earlier in the day. All the sectoral indices on BSE were in the red.

The market slipped into the red after a firm start triggered by higher Asian stocks. The market extended initial losses to hit fresh intraday low in morning trade. The market came off lows in mid-morning trade. Th market weakened once again after recovering from the day's lows in early afternoon trade. A bout of volatility was witnessed in afternoon trade as a recovery from lower level was cut short. The market slumped to five-month low in mid-afternoon trade.

Macroeconomic worries arising from higher crude oil prices weighed on sentiment. The government on Monday, 31 January 2011, approved a Rs 8,000-crore subsidy to the three public sector oil marketing companies to compensate half the revenues they lost on selling diesel, domestic LPG and kerosene below cost for the quarter ended 31 December 2011. Benchmark Nymex light sweet crude-oil futures settled at the highest level in more than two years on Monday, 31 January 2011, after climbing 3.2% in the session

A recent data had showed that the government's fiscal deficit in the April-December 2010 period of fiscal 2010-11 declined 44.75% to Rs 1.71 lakh crore, from Rs 3.09 lakh crore in the same period last fiscal. The deficit during the period is just 44.9% of the Budget Estimate of Rs 3.81 lakh crore for the whole fiscal

As per provisional figures, foreign funds sold shares worth Rs 920.38 crore while domestic funds bought shares worth Rs 1008.14 crore on Monday, 31 January 2011. Foreign funds dumped shares worth a net Rs 8903.60 crore in January 2011, as per data from the stock exchanges, with domestic funds absorbing part of the selling. Domestic funds bought shares worth a net Rs 5237.17 crore in January 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, government data released on Tuesday 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 on Tuesday. 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.

European shares bounced back on Tuesday, with investors confidence bolstered by a bright outlook for the economy and corporate profits, with strong earnings from Infineon and ARM lifting technology firms. The key benchmark indices in France, Germany and UK rose by between 0.48% to 0.55%.

Asian stocks rose on Tuesday, led by shares of resource companies, as strong US factory data and surging commodities prices offset fears that unrest in Egypt could spread to other parts of the Middle East. The key benchmark indices in Hong Kong, Indonesia, China, Japan, Singapore and South Korea rose by between 0.04% to 1.18%.

China's official purchasing managers' index (PMI) gauge of manufacturing slipped to 52.9 in January, indicating slowing growth in the sector after December's 53.9 reading. However, HSBC said its own China PMI rose slightly in January, edging up to 54.5 from 54.4 in December, though still below November's 55.3 reading. Still, both readings agreed that inflation remained a problem.

US index futures edged higher in volatile trade. Trading in US index futures indicated that the Dow could gain 15 points at the opening bell on Tuesday, 1 February 2011.

US stocks rose on Monday on strong corporate earnings and signs of a strengthening economy, even as a surge in the price of oil highlighted the potential for increased political risk in the Middle East to upset markets.

Egyptian Vice President Omar Suleiman said on Monday that President Hosni Mubarak has asked him to start a dialogue with all political forces, while Egypt's armed forces pledged not to fire on peaceful demonstrators. The latest news calmed US markets after stocks suffered their biggest fall in nearly six months on Friday on worries turmoil in Egypt could spread to other Middle East countries.

On the economic front, the Commerce Department said US consumer spending rose in December for a sixth straight month, while a separate report showed business activity in the US Midwest grew more than expected in January.

Back home, the results announced so far showed that the combined net profit of a total of 1,411 companies rose 23.3% to Rs 66,916 crore on 20.8% rise in sales to Rs 5,55,923 crore in Q3 December 2010 over Q3 December 2009.

At 14:20 IST, the BSE 30-share Sensex was down 278.97 points or 1.52% to 18,048.79. The index shed 309.56 points at the day's low of 18,018.20 in mid-afternoon trade, its lowest level since 31 August 2010. The index gained 124.30 points at the day's high of 18,452.06 in early trade.

The S&P CNX Nifty was down 86.55 points or 1.57% at 5,419.35. The Nifty hit a low of 5,406.75 in mid-afternoon trade, its lowest level since 1 September 2010.

The BSE Mid-Cap index fell 1.24% and the BSE Small-Cap index declined 0.93%. Both these indices outperformed the Sensex.

The market breadth, indicating the health of the market, was negative compared with positive breadth earlier in the day. On BSE, 1661 shares declined while 1115 shares advanced. A total of 102 shares remained unchanged.

Among the 30-member Sensex pack, 26 declined while rest rose.

Index heavyweight Reliance Industries (RIL) fell 2.49% with the stock falling for the sixth straight day. The Comptroller and Auditor General of India is reportedly finalising a report that questions the government's move to allow Reliance Industries to increase its expenditure in developing the D-6 field of the KG basin, significantly reducing the country's share of revenues from the biggest gas field.

The RIL stock has fallen recently on concerns about slow ramp up in gas production from the KG-D6 field. Gross natural gas production from RIL KG-D6 block, off India's east coast, declined 5.7% to 55.8 million metric standard cubic metres per day (mmscmd) in Q3 December 2010 from Q2 September 2010, as the company continues to struggle to find solution to problems related to the reservoir.

RIL's net profit rose 28.14% to Rs 5136 crore on 5.15% rise in net turnover to Rs 59789 crore in Q3 December 2010 over Q3 December 2009. Higher refining and petrochemicals margins boosted the performance. RIL's gross refining margin (GRM) improved to $9 per barrel in Q3 December 2010 from $5.9 per barrel in Q3 December 2009. The GRM was also higher compared to $7.6 per barrel in Q2 September 2010. The result was announced after trading hours on Friday, 21 January 2011.

Auto stocks declined on worries higher interest rates and spike in fuel prices and vehicle costs could dent demand. India's largest truck maker by sales Tata Motors tumbled 5.23%. Tata Motors' total vehicle sales rose 15% to 75,423 units in January 2011 over January 2009. Domestic sales rose 13% to 70,475 units. Commercial vehicle sales rose 12% to 40,263 units.

Maruti Suzuki India fell 0.58%. The company announced during market hours today 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.

M&M, Hero Honda Motors and Bajaj Auto declined by between 0.29% to 1.39%.

FMCG stocks also fell on profit taking. United Spirits, Nestle India, ITC and Hindustan Unilever fell by between 0.98% to 3.96%.

Interest rate sensitive realty stocks declined for the fifth straight day on concerns higher interest and higher property prices may dent demand for residential units. Indiabulls Real Estate, Unitech and HDIL fell by between 2.28% to 7.37%.

DLF declined 0.45%, reversing initial gains after consolidated net profit fell 0.47% to Rs 465.67 crore on 20.56% rise in total income to Rs 2594.23 crore in Q3 December 2010 over Q3 December 2009. The company announced the Q3 results after market hours on Monday, 31 January 2011.

The company said at the time of announcing Q3 December 2010 result that the focus on debt reduction will be visible gong forward with new launches, acceleration of execution, culmination of investments in strategic land buys and continuing non-core asset divestments. DLF also said Q4 March 2011 will witness a scale up in launches across 4-5 geographic locations.

ACC declined 1.63%. ACC's cement dispatches rose 7.32% to 2.05 million tones in January 2011 over January 2010. Production rose 9.5% to 2.06 million tonnes. The company announced the monthly sales data during trading hours today, 1 February 2011.

HOV Services fell 3.87% after the stock turned ex-dividend today, 1 February 2011, for a third interim dividend of Rs 2 per share for the year ending March 2011.

Steel Strips Wheels surged 2.91% after net profit galloped 226% to Rs 7.72 crore on 43% surge in net sales to Rs 165.49 crore in Q3 December 2010 over Q3 December 2009.

Navneet Publications (India) advanced 2.15% after net profit rose 29.5% to Rs 6.15 crore on 9.8% increase in net sales to Rs 74.57 crore in Q3 December 2010 over Q3 December 2009.

Phillips Carbon Black spurted 3.33% on reports the company is in the race to acquire the $1.2 billion carbon black division of Germany's Evonik Industries.

Tata Communications declined 2.98% after the company reported consolidated net loss of Rs 197.41 crore for Q3 December 2010 compared with a net profit of Rs 30.18 crore in Q3 December 2009.

On the macro front, the GDP growth for the 2009/10 fiscal year has been provisionally revised upwards to 8% from 7.4%, a government statement said on Monday. "The estimates of GDP and other aggregates for the previous years have been revised on account of using the new series of wholesale price index (WPI) with base 2004-05 and also subsequent revision in index of industrial production (IIP)," the Central Statistical Organisation said in a statement on Monday.

The food price index rose 15.57% and the fuel price index climbed 10.87% in the year to 15 January 2011, government data, last week, showed. In the prior week, annual food and fuel inflation stood at 15.52% and 11.53%, respectively. The primary articles index was up 17.26% in the latest week, compared with an annual rise of 17.03% a week earlier.

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.