Indian stock indices decline on near-term inflationary concerns

Indian stock indices traded in the red Friday, a day after the Reserve Bank of India flagged concerns about possible inflationary pressures in the near term.
Sensex and Nifty were 0.4 per cent lower from their previous closing at the time of writing this report. Among the sectoral indices, barring Nifty consumer durables, Nifty realty, Nifty PSU bank, and Nifty, all other Nifty indices were lower today morning.
The Reserve Bank of India in its three-day monetary policy committee meeting unanimously decided to keep the repo rate unchanged at 6.5 per cent – for the third time in a row, something most financial market experts had expected. The repo rate is the rate of interest at which RBI lends to other banks.
The central bank has upwardly revised the country’s retail inflation projections for 2023-24 at 5.4 per cent, against the 5.1 per cent it projected in its previous monetary policy meeting in June. It said a “substantial increase” in headline inflation would occur in the near term.
The upward revision in the inflation outlook comes after retail inflation in India rose considerably in June to 4.81 per cent, largely due to a sharp spurt in vegetable prices – including tomatoes. Besides vegetables, meat and fish; eggs; pulses and products; spices indices too saw an uptick.
Back in May, the retail inflation was at a two-year low of 4.25 per cent. It was at 4.7 per cent in April and 5.7 per cent the previous month.
Inflation data for July is likely to be released anytime soon.
“The indication from the RBI is that a rate cut can be expected only in Q1 of FY 25. This will be a headwind for the market. But the market is likely to remain strong. Banks, capital goods and autos are likely to do well, going forward,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Meanwhile, shares in other Asian markets were mixed after US stocks ended steady on Thursday, as investors balanced cooling inflation with the prospect interest rates will remain elevated, said Deepak Jasani, Head of Retail Research, HDFC Securities.
Going ahead into next week, the minutes of US Fed monetary policy minutes from the July meeting will notably be scrutinised with the market holding mixed views on whether more hikes may be expected for the rest of 2023, said S&P Global Market Intelligence.