Markets warm up as inflation cools in US

Equity markets were strong across the world, as the inflation data in the US was better than expected with CPI inflation at 7.7% y-y cooling off significantly as compared to 8.2% y-o-y last in October and market expectation of 7.9% y-y, said analysts.

This essentially has reduced the recession probability from 60% to 40% and has brought down the expectation of a peak benchmark rate from 5.25% to 5%, said Sushant Bhansali, CEO, Ambit Asset Management. This is the first spark of good news from the USA in a long time and has been instrumental in lifting investor sentiments, added Bhansali.

From the last couple of trading sessions, the market was in a cautious mood and was waiting for a crucial US inflation print for October. The cooler than the expected inflation print has led to the conclusion that inflation in the US market has peaked, and the US FED may pause the aggressive stance on the rate hikes soon said Naveen Kulkarni, Chief Investment Officer, Axis Securities

Some of the experts even feel that it is probable that the Fed might pause after one more hike of 50 basis points and this will be good news for global equity markets.

“The Indian market will test record highs and sustain above them,” said Shankar Sharma, co-founder of PMS company First Global. “The pace of inflation will slow, going forward, thanks to the base effect.”

Currencies including rupee appreciated against the dollar which remains key positive.

The Rupee at ₹80.81 to a dollar gained 100 paisa from 81.81 on Thursday, the lowest levels since September. Lower than expected US inflation triggered a sharp rally in risk assets and fall in the dollar index, said Anindya Banerjee, VP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities Ltd Over the next week, we could see further appreciation in Rupee against dollar and Bannerjee expects a range of 80.00-81.10 on spot.

The US dollar slumped along with treasury yields as investors evaluated the likelihood of a less hawkish rate hike by the Fed. Reduced treasury yields will aid to improve FII inflows said Vnod Nair, Head of Research at Geojit Financial Services.

The Foreign Portfolio Investors having been net buyers of Equities worth ₹12062 Crore in November till 10th,. were net buyers of ₹3,958.23 crore worth of equities

India Vix was at 14 months low, Bank Nifty hits record high . Nifty 1.38% below record and Sensex 0.7% away from record.

The gains in the market were led by the HDFC twins on reports that the merged entity would find a place on the MSCI India index, thanks to an imminent increase in free float.

The almost 6% rise in the two stocks catapulted the Bank Nifty to a fresh record high of 42345.5 on Friday, surpassing its earlier high of 41840.15 in mid-September.

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Fear gauge Vix closed at a 14-month low of 14.41, reflecting complacency in the market. A level above 22 signals fear while that below 14 is indicative of excessive bullishness.

While Bank Nifty scored a record high, both Sensex and Nifty hit fresh 52-week highs, shy of their record highs on October 19 last year. The Nifty hit a 52-week high of 18362.30 while the Sensex hit a 52-week high of 61840.97.

At close of 18349.7, the Nifty was just 1.38% off its record high of 18604.45 on October 19, 2021 while the Sensex at close of 61795 was just 0.7% away from its all-time high of 62245.43 in October last year.

Another indicator of the bullishness was visible in the 90-point premium of futures over spot Nifty.

“The futures premium shows extreme bullishness near record high level and that’s a sign of caution,” said Rajesh Palviya, technical head of Axis Securities. “We recommend buying on dips.”

UR Bhat, director, Aphaniti Fintech, termed the rally an “overreaction” as the US Fed could continue hiking rates through March of 2023 . He added that markets could “momentarily” test their record highs but were unlikely to sustain above them amid mixed earnings and persistently high inflation across the world markets.