Indian stocks firm after US reports softer-than-expected inflation

Indian stocks were off to a positive start Wednesday, tracking firm overnight cues from the US markets after softer-than-expected US inflation data supported the view that its central bank may be done raising interest rates. S&P 500 closed 1.91 per cent higher at 4,495.70 points. At the opening bell here in India, benchmark indices Sensex and Nifty were about 1 per cent higher each, with all sectoral indices in the green.

Among the most-tracked Nifty 50 companies, Hindalco, ONGC, LTI Mindtree, Tech Mahindra, and JSW Steel were the top five gainers, ranging between 2-5 per cent.
“The October US inflation data is a game changer for the stock market. The 3.2 per cent October inflation print is lower than expected. More importantly, the mere 0.2 per cent MoM increase in core inflation is hugely positive. The takeaway from these numbers is that the Fed is done with rate hikes and the timeline for rate cuts in 2024 is likely to be advanced,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

“The sharp recovery in US markets will be reflected in India, too. The short covering can add to the rally. FIIs are likely to turn buyers, lest they miss out on the rally in the best-performing large economy in the world. Leading financials which were weighed down by FII selling will bounce back,” Vijayakumar added.

Foreign portfolio investors (FPIs) sold stocks worth Rs 14,768 crore, Rs 24,548 crore, and Rs 477 crore, respectively, in September, October, and so far in November, data from the National Securities Depository showed.

Also, retail inflation in India easing to a four-month low in October and slowly aligning with RBI’s 4 pe per cent target, and wholesale inflation continuing to stay in the negative zone too have supported the stocks. The October consumer price index (CPI) came at a four-month low of 4.87 per cent against 5.02 per cent the previous month, official data showed earlier this week.

Barring the recent pauses, the RBI has raised the repo rate by 250 basis points cumulatively since May 2022 in the fight against inflation. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.