Indian equity markets started Wednesday’s session with nominal gains despite retail inflation jumping to a 17-month high of 6.95 per cent in March from 6.07 percent in February. After trading in green for a while, indices erased morning gains and were mostly trading flat. The BSE Sensex was up 60 points to 58,600, and the NSE Nifty 50 was around 17,550. The higher-than-expected rise in retail inflation has led to analysts speculating that India may get its first repo rate hike in nearly two years in June which, in turn, led to markets turning volatile. ALSO READ
Investors still cagy, volatility likely to continue
“Despite Indian CPI coming in at 6.95% (higher than consensus estimates of 6.4%) for March 2022, Indian equity markets have taken the high inflation print in its stride on the back of positive global cues. Most Asian markets and US futures are trading positively, which is supporting Indian markets. With the Chinese government relaxing some Covid related curbs in Shanghai, the expectation is that global supply chains will start easing leading to prices moderating to an extent. Even in the US, the inflation print yesterday night came in line or slightly higher than expected but was nowhere close to what some pessimistic forecast suggested, creating a sigh of relief,” said Nishit Master, Portfolio Manager, Axis Securities.
“Even though the markets are up on global clues, the participants are still cagy, and thus we expect volatility to continue. Defensive sectors like FMCG and Utilities are leading the charts, while sectors benefiting from high inflation like metals and Oil & Gas are also doing well,” he added.
Market showing time-wise correction instead of price-wise correction
Santosh Meena, Head of Research, Swastika Investmart said, “Inflation is one of the biggest concerns for the market. However, most of the pain is already factored in by the market where any sign of easing in inflation may lead to a relief rally. The market believes that the worst is behind us in terms of high inflation, however it may remain elevated for a long time.”
He further said, “We are in a structural long-term bull market where the market tends to focus more on good news rather than bad news. Our market is showing time-wise correction instead of price-wise correction where the headline indices didn’t go anywhere for the last six months. There is sector and stock specific movement where commodity stocks are supporting the market amid inflation whereas sectors like Telecom, Banks, and IT are doing well as they are not much impacted by inflation.”
Ample liquidity in economy, easy funds to do business sporting equity market
Rohit Gadia, Founder at CapitalVia Global Research said, “This is the third month in a row that inflation has remained beyond the upper limit of the Reserve Bank of India’s intended range. Prices of veggies and a variety of other food items have skyrocketed in recent weeks. In the last month, the prices of petrol and diesel have both risen by roughly Rs 10 per litre. Agriculture, metals, and banks, particularly Kotak, ICICI, and Axis Bank, are all on the rise. NBFCs are moving up alongside private banks. Normally, as inflation rises, the RBI raises interest rates to contain it. However, on the micro level, there is a lot of liquidity in the economy and easy funds to do business which are sporting the equity market.”
