Inflation's affect on SENSEX

Well here i came up with something actually describing the affect of inflation on SENSEX in concord with the recent market headwinds.

Brief summary->As already known the current poor performance of SENSEX is credited to high inflation persistent in the Indian Economy.The food price index rose 18.32 per cent in the 12 months to December 25, the highest in more than a year. The fuel price index climbed 11.63 per cent. In the prior week, annual food and fuel inflation stood at 14.44 per cent and 11.63 per cent respectively. The primary articles price index was up 20.20 per cent in the latest week, compared with an annual rise of 17.24 per cent a week earlier. The Wholesale Price Index, the most widely watched gauge of prices in India, rose 7.48 per cent in November from a year earlier, compared with 8.58 per cent in October. According to the prime minister's economic advisory council chairman C Rangarajan, the inflation rate could be considered comfortable only when it comes down to four per cent. While raising rates can do little to cap cost-driven inflation, it can help cool overall demand and contain inflationary expectations fuelled by a broad rally in the commodity markets.

Rising inflation leads to increase in interest costs, which affects the companies depending on debt finance as the cost of funds increases. This negatively affects the bottom lines of the companies.

Moreover, increase in prices leads to decrease in demand, which again affects the corporate bottom lines. The purchasing power of people gets reduced. All these cumulatively have an adverse affect on the corporates, and thereby on the Sensex.

My inference- The above summary hopefully meets all the questions about the reasons for current disturbances in Indian Market. Thank you!