Indian stock markets declined in the week ended April 4 wiping out earlier gains on worries over the reality that the increasing inflation will bring about a higher interest rate regime and will thus slow down the growth.

Banking and capital goods shares led the fall.

The wholesale price based inflation rate touched a 3-year high of 7% for the week ended March 22 as against 6.68% in the previous week. It stood at 6.54% in the corresponding week in the previous year.

Goldman Sachs, the global investment banking and securities firm said, “We now expect the monetary policy to tighten, with the RBI increasing rates by 50 bps in April to primarily arrest inflationary expectations, and also to compensate for loose fiscal policy. Real policy rates have now been driven below 1%.”

“We expect the central bank to encourage further Rupee appreciation, and we are projecting a 4% appreciation in FY09,” Goldman Sachs said.

The 30 share index plunged 1,028.17 points, or 6.28%, to 15,343.12 during the week ended April 4, whereas the broad based NSE Nifty declined 295 points, or 5.97%, to 4,647 in the same period. BSE mid-caps and small-caps zoomed 3.98% and 2.37% respectively over the week.

All sectoral stocks declined during the week. Major losers in the sectoral indices were BSE, Capital Goods which plunged 12.69%, Power dropped 10.23%, Metal slipped 8.28%, Realty lost 7.99% and Bankex declined 7.44% in the week.

Consumer Durables, Auto, Tech were other major losers while the rest reported loss of less than 2%.