It’s been a worrying Wednesday for the market so far. Continuing with the volatile trend earlier this week, the indices have seen sharp correction in afternoon trade. The Nifty has slipped over a percent and is now trading around the 23,600 mark while the Sensex has breached the key 78000 mark. The continuous outflow of funds has been a source of worry but that apart there are some broad macro concerns for the indices too.
Macro worries for investors: Inflation at 14-month high, rate cut unlikely in Dec
The inflation reading for October came in at 14-month high. At 6.21%, the inflation print was significantly higher than expectations that were hovering under the key 6% mark. This is an outcome of a combination of factors. Starting with unfavourable base effects, vegetable prices at new highs, especially inion prices shooting to 5-month highs and also international palm oil prices inching upwards. According to JM Financial they see “upside risk of 40bps to RBI’s inflation expectation of 4.8% for Q3FY25. Markets are building in shallow rate cut cycle by the Fed. We believe RBI would avoid any premature policy moves and continue to focus on domestic macros over external events. We expect status quo in Dec’24.”
Even Dharmakirti Joshi, Chief Economist, CRISIL corroborated the view, “though non-food inflation remains benign around 3%, the recurring flare-up in food inflation has kept headline inflation elevated and creates an upside risk to the inflation trajectory – restricting the easing in monetary policy. We expect the Monetary Policy Committee (MPC) to hold rates steady in December, given the sharp rise in food inflation in September and October. That said, in our base case, we expect food inflation to ease this fiscal as kharif sowing has been healthy. Vegetable prices can correct sharply when fresh stocks enter the market. Accordingly, we expect the MPC to cut rates towards the end of this fiscal.”
Global cues
The Asian markets have closed on a weaker note in line with US markets that ended trade on Tuesday significantly weaker. The Nikkei shut ship down 1.69% while Hang Seng closed down 0.17%. The Dow closed nearly 300 points lower on Tuesday- November 12. The Chinese markets however bucked the trend driven by strong stimulus push by the Chinese Central Bank.
FII selling continues
Of course the continued fund outflow has been a worrying factor for the markets.
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