The Sensex fell for a fifth session in row on Monday as higher-than-expected inflation reduced the prospects of further interest rate cuts, while a spike in global risk aversion further dented sentiment.
Currently, technical analyst Sudarshan Sukhani says the trend is down and advises maintaining positions on the short side.
Trading was also marked by an issue with the confirmation of orders in the National Stock Exchange's Nifty futures, though trading later resumed as normal.
The inflation monster continues to keep its ugly head high. Inflation accelerated up to 7.23% as against 6.9% on a month-on-month basis adding to the central bank's headache.
The chairman of the Prime Minister's Economic Advisory Council says that the April inflation numbers make it difficult for RBI to moderate policy.
On a positive note, he says, that growth in the fiscal year 20112-2013 will be higher that what it was last time round. He expects agriculture to do well because the monsoon is expected to be normal, and he says the manufacturing sector will grow faster because of the low base.
He also sees services doing better year on year.
Banks were among the leading decliners on Monday, after ratings agency Moody's downgraded hybrid and standalone ratings for top banks like ICICI Bank, HDFC Bank and Axis Bank.
The standalone rating for the three banks has been lowered to the sovereign rating level D+ from the earlier C- the hybrid rating has been revised to BAA2 from BAA3.
Moody's also downgraded LIC to BAA3 from the earlier BAA2 with a stable rating outlook.
Among blue chips, Reliance Industries fell 2.32%.
More than Nifty action today, what's happening around the market is not very encouraging, with the exception of crude. Europe is showing fresh signs of breaking down because of the German electoral uncertainty, which has cropped up. Things are once again not looking great there.
The rupee is struggling and getting close to 54 to a dollar. So these are not great portents for the market and today's inflation reading makes it very difficult for the RBI to move in June or July.
All the things said and done, things don't look good for the market, which is why the Nifty's performance at 4900 is not too bad in that context. Maybe it is a situation where the bears are saying this is not the right time to short the market afresh because the market has come off quite a bit. It is probably approaching interesting valuation levels and important technical support levels as well around 4700-4800.
So, to milk the last 100 points most serious positional traders might not be pressing fresh short positions. It is probably why you're seeing the downward momentum slowing down a little bit.
This could change tomorrow but on the evidence of today we've seen some downward momentum flagging and that may have partly to do with crude at USD 110 a barrel and partly the reluctance of traders to take fresh short positions at this juncture.