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NEW DELHI : Markets touched a four-month high on Thursday as foreign investors scooped up stocks amid hopes that the cooler-than-expected US inflation will lead to slower interest rate hikes. As a result, the benchmark Sensex soared past the 59,000 mark, last seen on 8 April.

The index ended trading 0.88% higher at 59,332.60.

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US retail inflation slowed to 8.5% in July, below the estimate of 8.7% and lower than 9.1% in June, raising hopes that the Federal Reserve may be less aggressive in hiking interest rates. This also increases the probability of a soft landing in the US. The market is likely to be bullish in the near term, said V.K. Vijayakumar, chief investment strategist at Geojit Financial Services.

Foreign portfolio Investors (FPIs), which had sold more than 2 trillion worth of equities in the six months to 30 June, turned net buyers of 6,719.75 crore in July after nine months, helping benchmark indices gain more than 15% from the lows of July. FPI buying intensified in August with purchases of 18,733.3 crore till 10 August. According to provisional figures, they were net buyers of 2,298.08 crore worth of equities on Thursday. Softening commodity prices, cooling crude oil, and expectations that the peak of the rate hike cycle may be behind too have supported the gains.

India remains one of the best-placed markets right now, and valuations, relative to the growth, are not expensive, which is providing a respite to FPI selling, feel analysts.

Analysts at Morgan Stanley Research, in a 9 August report, said, “Our view remains India is best-positioned within Asia to deliver domestic demand alpha. Its cyclical recovery will be sustained by structural factors". Over 2022-23, Morgan Stanley expects India’s growth to average 7%, the strongest among the largest economies, contributing 28% and 22% to Asian and global growth.

FIIs are also expected to remain net buyers, as valuations are reasonable compared to the recent past, said Mitul Shah, head of research at Reliance Securities. Shah expects a strong economic rebound, normalized commodity prices, inflation within a targeted range, and better visibility in the second half of FY23, leading to a strong rebound of the equity market and FII inflow towards the end of Q2 and the beginning of the second half of FY23.

The rupee, which breached the 80 level to a dollar on the spot market, too, has slightly strengthened, a positive for FPI inflows. The rupee in the near term is not likely to slip much. “The overall bias remains of a range between 79.00 and 80.00 levels on the spot for USDINR," said Anindya Banerjee, vice-president, currency and interest rate derivatives at Kotak Securities Ltd.

FPI flows have remained strong, particularly in FMCG, banking, financial services and insurance (BFSI), capital goods, and construction material.

Notably, FPIs that had remained net sellers in the BFSI segment since November have become buyers in July, and analysts attributed it to banks seeing a turnaround, with strong credit growth, robust asset quality, and expanding net interest margins.

The power and healthcare sectors, too, have seen improved buying activity; however, FPIs have remained net sellers in the oil and gas, metals, and technology sectors since the start of July.

Meanwhile, India’s inflation data is due on Friday, which will be closely watched, analysts said.

The benefit of the recent moderation in commodity costs is likely to start accruing in the second half of FY23, which would boost corporate profitability, said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services Ltd. Thus, the positive momentum in the market is likely to sustain going ahead, though bouts of volatility can’t be ruled out given mixed global cues and increasing geopolitical tensions, Khemka added.

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