Indian stock markets were trading on a flat note this afternoon offsetting hopes of an additional cut in policy rates by the central bank (RBI) actuated by a reduction in inflation to a 15-month low.

For week ended February 14, inflation fell to 3.36% as against 3.92% during the last week.

Heavy selling action was witnessed across banking stocks, which fell more than 2%.

The top gainers among sectoral indices were BSE Auto (1.12%), IT (0.83) and Capital Goods (0.46%). On the other hand, BSE Bankex (2.39%), Realty (1.70%) and Consumer Durables (1.47%) featured in the list of major sectoral losers.

BSE Midcap also moved up by 0.02%, while BSE Smallcap was down by 0.74%

At 01:55 p.m., the 30-share index Sensex lost 33.02 points at 8,869.54. It also touched a high of 8,905.56 and a low of 8,788.32. Meanwhile the broad based Nifty stood at 2,752.60, down 9.90 points, after hitting a high of 2,765.90 and a low of 2,731.90.

“Volatility will continue to rule; a possible intra-day upside could come in above the 2763 level and significant resistance at higher levels of 2810 will likely limit the upside. Our outlook for the day is negative. We expect resistance at the 3150+ level and support at the 2497 level,” said Asit C Mehta report.

The overall market breadth was negative as it witnessed 886 progressions as against 1,289 declinations.

The major movers’ in the 30-share index included Tata Motors (2.79%), Mahindra & Mahindra (1.85%), Tata Consultancy Services (1.63%), Reliance Communications (1.59%), Sterlite Industries (India) (1.46%) and Grasim Industries (1.41%).

On the other hand, the major losers in the Sensex were Ranbaxy Laboratories (-17.10%), ICICI Bank (-4.89%), DLF (-3.33%), Reliance Capital (-3.01%), Housing Development Finance Corporation (-3.00%), and HDFC Bank (-1.16%).

The global financial sector disaster and slump in key global economies have pushed financial growth in India down to a six-year low. The Central Statistical Organisation (CSO) has pegged India's projected GDP growth for the year ending March 2009 at 7.1%, the slowest in six years and below the previous year's 9% rise. S&P, however, feels that India's medium term growth prospects remain strong.

Asian stocks traded on a negative note. Japanese benchmark index Nikkei fell 3.29 points to trade at 7,457.93.

Meanwhile China’s Shanghai Composite fell 85.32 points to trade at 2,121.25.