Calm Before the Storm: IIP and CPI Inflation Data Set to Influence Markets

In the absence of significant triggers in the stock market, participants are turning their attention to key macroeconomic indicators, including the Index of Industrial Production (IIP) and Consumer Price Index (CPI) inflation, starting Monday, according to market analysts.

With no major events on the horizon, analysts suggest that market attention will likely focus on these economic indicators. Ajit Mishra, Senior Vice President of Research at Religare Broking Ltd, noted, “The RBI governor emphasized the critical need to manage inflation in his recent speech. A potential easing of inflation, combined with sluggish GDP growth, could create room for a rate cut in the next policy meeting.” He also highlighted the importance of monitoring the trend of Foreign Institutional Investor (FII) inflows, following their recent buying activity.

Manish Goel, Founder and Managing Director of Equentis Wealth Advisory Services Ltd, echoed this sentiment, pointing out that the upcoming CPI data could significantly influence market movements. “India’s November CPI data is set to be released on December 12, with attention on October’s inflation rate of 6.21 percent, the highest in over a year. The surge was primarily driven by rising food and vegetable prices, adding pressure on the economy,” he stated. Goel emphasized the importance of upcoming data in determining whether inflationary trends are easing or persisting, which will impact expectations for key sectors and overall market sentiment.

Goel also noted that the recent government formation in Maharashtra is expected to drive economic growth, particularly in infrastructure, real estate, finance, and renewable energy, with policy stability under the Mahayuti alliance fostering a positive market outlook. He added that the RBI’s decision to maintain the repo rate at 6.50 percent while reducing the Cash Reserve Ratio (CRR) by 50 basis points to 4 percent is likely to influence investor sentiment by injecting liquidity into the system.

The markets experienced a recovery for the third consecutive week, gaining over 2 percent amid mixed cues. Positive sentiment emerged early in the week as weaker-than-expected GDP data raised hopes for RBI intervention, which materialized with a 50-basis-point CRR cut during the policy meeting, while the repo rate remained unchanged. Additionally, renewed buying by FIIs, following a prolonged period of selling, further bolstered market confidence.

FII outflows decreased to Rs182 billion (USD 2.2 billion) in November, a significant drop from Rs919 billion (USD 10.9 billion) in October. The month showcased a tale of two halves, with FIIs remaining net sellers in the first half of November, recording outflows of Rs195 billion (USD 2.3 billion), but turning net buyers in the second half, bringing in Rs13 billion (USD 159 million).

All major sectors contributed to the market rally, with realty, metal, IT, and banking emerging as top gainers, while the FMCG sector underperformed. Broader indices also performed well, with both midcap and smallcap indices surging over 4 percent, surprising market participants.