Weak IIP data drags Sensex 82 points down

The Bombay Stock Exchange BSE’s Sensex closed down 0.46% on Friday, reversing early gains, after data showed the country’s industrial output in December slowed sharply and Morgan Stanley cut its allocation for emerging market stocks.

India’s industrial output grew just 1.8% in December, its slowest in two months, as sluggish global growth, tight monetary policy from the country’s central bank and government policy paralysis stifles economic growth.

The main 30-share BSE index fell 82.06 points to end at 17,748.69, with 22 of its components losing value. The benchmark index was up 0.3% before the industrial output data was released.

The 50-share NSE index ended 0.57% lower at 5,381.60 points. In the broader market, gainers led losers by a ratio of about 4:3 on a larger than average volume of almost 1 billion shares.

Shares in carmakers, construction companies and banks all fell, as the less-than-forecast figure confirmed fears of slowing economic growth in the country. Morgan Stanley will scale back its position in emerging and Asian stocks from the maximum “overweight,” the investment bank said in a report released on Friday. It was the bank’s first downgrade in stance on emerging markets since October, 2010.

“The output was worse than expected, and the market took a hit on Morgan Stanley’s cut in allocation for emerging markets, which will likely see foreign inflows fall,” said Hitash Dang, vice president at Jaypee Capital.

Foreign funds have invested more than $3.6 billion in local equities so far this year, data from the Sebi showed. In 2011, they were net sellers of about $500 million.