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Business News/ Markets / Stock Markets/  Retail inflation likely rose near 6% in November; should investors be worried?
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Retail inflation likely rose near 6% in November; should investors be worried?

According to a Mint poll of 23 economists, India’s retail inflation likely rose 5.8 per cent in November. A Reuters poll of 41 economists predicted India's November CPI rose 5.70 per cent in November.

Nifty 50 has jumped over 4 per cent in December so far. (HT)Premium
Nifty 50 has jumped over 4 per cent in December so far. (HT)

India's consumer price index (CPI)-based inflation, or retail inflation, might have risen by nearly 6 per cent in November, from 4.87 per cent in October, led by a sharp rise in vegetable prices.

According to a Mint poll of 23 economists, India’s retail inflation likely rose 5.8 per cent in November. A Reuters poll of 41 economists predicted India's November CPI rose 5.70 per cent in November.

On the other hand, the estimates of global financial firm Barclays show India's CPI-based inflation might have risen above the RBI's tolerance limit of 6 per cent 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 per cent)," Barclays said in a report.

Also Read: India CPI inflation may breach RBI's 6% tolerance band in November, says Barclays

Should investors be worried?

Experts are of the view that the rise in retail inflation print is unlikely to weigh on market sentiment as core inflation likely remained stable and an uptick in inflation print is widely expected.

"Inflation could be around 6 per cent. The market already knows that there will be a spike in inflation in November because of high vegetable prices. The market will not be disappointed if inflation comes near 6 per cent," V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services told Mint.

"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," said Vijayakumar.

On Friday, December 8, the RBI kept the inflation forecast unchanged as it projected Consumer Price Index (CPI)-based inflation, or retail inflation, at 5.4 per cent for FY24, with Q3 projection at 5.6 per cent and Q4 projection at 5.2 per cent. CPI inflation for Q1FY25 is projected at 5.2 per cent, for Q2 at 4 per cent and for Q3 at 4.7 per cent.

RBI Governor Shaktikanta Das highlighted that the central bank made significant progress in bringing down inflation to below 5 per cent in October 2023. However, the target of 4 per cent CPI is yet to be reached.

Also Read: RBI MPC Meeting: Repo rate unchanged; growth forecast raised; 7 key highlights of December policy meeting

Equity benchmark Nifty 50 has jumped over 4 per cent in December so far, following a gain of 5.5 per cent in November. Year-to-date, Nifty 50 is up about 16 per cent.

Pawan Bharaddia, Co-founder of Equitree Capital pointed out that retail inflation near 6 per cent is surely outside RBI’s long-term target of around 4 per cent but it is not at levels where one needs to be worried about.

"India has handled the global supply chain issues well enough and has done a commendable job of containing inflation within reasonable levels. From investors' perspective, we are seeing early signs of demand coming back from rural India and a stable demand scenario in urban areas suggesting that stable inflation is bringing back the consumers to the market and that is a good sign," said Bharaddia.

Trivesh D, COO of Tradejini said investors need not be overly concerned over the spike in inflation print in November as the current inflationary trend is cyclical and is anticipated to ease in the coming months.

"While small corrections in the markets may be expected if the official release surpasses the 6 per cent mark, it is important to note that retail confidence in corporate India has been on the rise over the past 12-18 months. The pressure of FPI selloffs has diminished, and the Indian equity markets are presently enjoying a positive outlook, with both benchmark indices achieving unprecedented highs in November 2023," Trivesh said.

"Markets are complacent at this moment due to fading uncertainty over the 2024 election outcome. RBI is even vigilant over inflation, but will not go for any rate hike in the near term. We recommend investors be cautious while investing fresh money. The portfolio should be evaluated to get rid of stocks where investor's risk-reward is unfavourable," said CA Prasant Bhansaali, Director of Mehta Equities.

Read all market-related news here

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

 

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Published: 12 Dec 2023, 02:06 PM IST
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