Nifty scales 18k but concerns over higher inflation print prevails

The Indian stock markets on Wednesday ended with gains for the second consecutive day despite weak global cues. The US’s CPI inflation came above expectations raising fears of a hawkish Fed. Bond yields, too, jumped, so did the dollar index which is a concern for emerging markets.

This meant that the session was extremely volatile, posting a bleak opening, Nifty oscillated 180 points from the lows of 17,853.80 to 18034.10, but at the end of the day the Nifty settled at over 18,000, up 0.48%, or with gains of 86 points.

However, caution must prevail after domestic CPI numbers came above Street expectations. US’s January inflation numbers also did not decline much compared to December, indicating that higher interest rates for a longer period might be a remedy, said analysts.

Traders are cautious due to uncertainty in global markets and the trend may continue for some more time, said Shrikant Chouhan,head of equity research (retail), Kotak Securities Ltd.

US CPI inflation came at 6.4% down from 6.5% in December, but was hotter than the Wall Street forecast of 6.2%. Higher inflation, along with a strong labour market, has raised concerns that the US Fed will remain hawkish for an extended period, said Vinod Nair head of research at Geojit Financial Services.

A reversal in foreign portfolio investor (FPI) pattern to net buying has likely helped maintain optimism in the domestic market leading to a rebound on Wednesday, said analysts. FPIs were net buyers of 432 crore equities. The trend, if sustained, may be positive for Indian markets.“The lack of aggressive selling led to some bottom fishing by traders. Concerns on interest rates remain at the back and the stance of the new Japanese governor will also be keenly watched for,” said Deepak Jasani, head of retail research at HDFC Securities Ltd.

Traders have increased bets that the Bank of Japan’s yield-curve control and negative-rate policies may be abolished soon under the new governors’ leadership, analysts said.

India, too, sees heightened rate hike concerns post hotter than expected CPI led inflation despite softer WPI numbers.

While wholesale core inflation has dipped further, positive sequential print in manufacturing reveals that producers will attempt to pass on cost pressures wherever feasible, said Suman Chowdhury, chief analytics officer, Acuité Ratings and Research. The MPC is expected to take into account headline and core retail inflation to decide on a rate hike in its next meeting, Chowdhury said there is a strong likelihood of a further rate hike in April unless we witness a significant drop in CPI inflation.

“In the near term, a break out by indices on the tech indicates that the market could see some gains. Nifty has given the highest closing of the last 15 sessions and we expect this momentum to continue,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services Ltd.

Further India VIX, too, has remained low at 12.86 levels providing support. In the near term, Khemka said defence, capital goods and auto sector stocks will do well on back of strong Q3FY23 results and healthy order books.

The India Vix hit a 52-week low of 11.28 on Wednesday, before settling at 12.86, way below the one-year average of 18.81. The Vix implies traders’ expectations of price swings over the next month on a rolling basis. Below 14 implies complacency while above 22 is indicative of fear.

“The Vix indicates there’s a good deal of complacency in the market in the near term, which isn’t sustainable,” said Ajay Vora, head of equities, Nuvama Asset Management. “For now, markets seem to have discounted the Adani Group issue and with the Budget, MPC policy and inflation data the major events are behind us. But, given that we are at the upper end of the 17300-18200 range it makes sense to buy protection which is going fairly cheap,” he said citing the attractive price of Nifty put options.

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