Consumer pricing index (CPI)-based inflation in India, or retail inflation, may have climbed by over 6% in November, up from 4.87 percent in October, owing to a strong increase in vegetable prices.
According to a Mint poll of 23 experts, retail inflation in India is expected to rise 5.8 percent in November. A Reuters poll of 41 economists forecast that India's November CPI would rise 5.70%. On the other hand, global financial giant Barclays forecasts that India's CPI-based inflation may have crept above the RBI's tolerance ceiling of 6% in November.
"We estimate that CPI inflation rose in November to 6.15 per cent year-on-year (YoY), a sharp reversal from the moderating trajectory over the past couple of months (October: 4.9 per cent, September: 5 percent)," the bank stated in its report.
Are investors concerned?
Experts believe that the increase in retail inflation print will have little impact on market sentiment because core inflation is likely to have remained consistent, and an increase in inflation print is generally expected.
"Inflation could be around 6%." The market is already anticipating a surge in inflation in November due to high vegetable prices. The market would not be dissatisfied if inflation approaches 6%, according to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
"Three factors are driving the market: (i) the expectations of political stability after the Lok Sabha election in 2024, (ii) the steady decline in 10-year US bond yields which has turned foreign portfolio investors (FPIs) into buyers, and (iii) strong domestic macro," Vijayakumar, the market analyst, said.
On Friday, December 8, the RBI maintained its inflation forecast, projecting Consumer Price Index (CPI)-based inflation, or retail inflation, at 5.4 percent for FY24, with Q3 at 5.6 percent and Q4 at 5.2 percent. CPI inflation is expected to be 5.2 percent in Q1FY25, 4 percent in Q2, and 4.7 percent in Q3.
RBI Governor Shaktikanta Das stated that the central bank has made great headway towards lowering inflation to less than 5% by October 2023. However, the aim of 4% CPI has yet to be met.
So far in December, the equity benchmark Nifty 50 has gained more than 4%, following a 5.5% increase in November. The Nifty 50 is up around 16% year to date. According to Pawan Bharaddia, Co-founder of Equitree Capital, retail inflation is over 6%, which is much above the RBI's long-term target of roughly 4%, but it is not concerning.
"India has handled global supply chain issues adequately and has done an admirable job of keeping inflation within reasonable levels." From the perspective of investors, we are seeing early signals of demand returning from rural India and a stable demand picture in urban areas, implying that stable inflation is bringing back consumers to the market, which is a good sign," said Bharaddia.
According to Trivesh D, COO of Tradejini, investors need not be excessively concerned about the November inflation print because the present inflationary trend is cyclical and is expected to moderate in the following months.
"While minor market corrections may be expected if the official release exceeds 6%, it is important to note that retail confidence in corporate India has been on the rise over the last 12-18 months." The pressure from FPI selloffs has subsided, and the Indian equities markets now have a bright outlook, with both benchmark indices reaching new highs in November 2023," Trivesh added.
"Markets are complacent at the moment due to fading uncertainty about the outcome of the 2024 election." The RBI is also concerned about inflation, but will not raise interest rates in the foreseeable future. We advise investors to exercise caution while investing new funds. "The portfolio should be evaluated to eliminate stocks where the risk-reward ratio is unfavourable for investors," stated CA Prasant Bhansaali, Director of Mehta Equities.
