Dalal Street extended losses for the second successive session on Monday with the Sensex shaving off another 341 points as high inflation, rising interest rates, record high oil prices and political concerns continued to haunt the markets. The Sensex plunged another 341 points or 2.47 per cent at 13,461.60, thereby taking the total losses for the month to 18 per cent, or 2,954 points — the biggest monthly drop since May 1992.

The Sensex even hit its lowest level in more than 14 months with realty, consumer durables, oil & gas and capital goods stocks leading the bear rout.

According to market circles, political uncertainty weighted on the market sentiment amidst speculation whether the ruling Congress led UPA government will be able to push through the much-debated Indo-US nuclear deal and still retain its power in the face of heavy opposition from its key communist allies. “There are so many uncertainties. Will there be elections? Who will come to power if elections are held? Will the new government restarts economic reforms process which has virtually come to a halt in the last two years or so,” said an analyst.

“We do not expect any near-term moderation in commodity prices, especially oil. Even after assuming an easing of food prices in 2H2008 and limited second-round effects, we expect headline WPI inflation to remain in double digits till end-2008. We are revising our average inflation forecast for FY09 to 10 per cent y-o-y from our previous estimate of 7 per cent. We now expect the RBI to increase policy rates by a further 100 bp (50 bps in the repo rate and 50 bps in the CRR) by the end of October. We continue to remain more hawkish than consensus,” said Tushar Poddar, vice-president of Asia Economic Research, Goldman Sachs.