Sensex, Nifty jump 1%: Here's a look at key factors driving the bull run

Indian equities opened higher on August 11 after a softer than expected US inflation data hinted at less aggressive rate hikes by the US Federal reserve. Investors will also keep a close eye on India's consumer price inflation data for July, which will be released on Friday.

In July, equity benchmarks Sensex and Nifty advanced nearly 8.5 percent each, while in August so far they have gained 3.2 percent individually. Investors will also keep an eye on GDP data for the first quarter of FY23 which will be announced on August 31.

Here's a look at the key factors which driving Indian equity markets:

US Inflation: The inflation in the US stayed elevated but came off 40-year high in June led by weaker core price pressures primarily. Consumer prices in July increased 8.5 percent in July as against 9.1 percent in June. This was driven by deflation in some COVID-affected sectors like used cars, airline fares, and lodging, while shelter inflation held firm. The headline inflation was flat for the month and core inflation more than halved to 0.31 percent.

"US (core) inflation should see a downward trajectory come fall season, led by positive base effects, broad-based demand easing, high inventory accumulation by firms, and signs of easing supply constraints. However, the path could be still patchy led by still-tight labor markets, strong wage inflation, and uncertainty about food and energy prices. The path to disinflation is now more about how quickly it decelerates and how the pace shapes the Fed’s policies in the next 6-12 months," said Madhvi Arora lead economist at Emkay Global. She expects the Fed to hike another 100bps this year (50bps in Sep and 25bps each in the following two meetings) before putting a break by year-end.

India CPI: India's retail inflation rate likely slowed in July, thanks to lower food prices. According to a Moneycontrol poll of 18 economists, inflation may have dropped to 6.7 percent last month. In June, the inflation rate measured by the Consumer Price Index (CPI) decelerated to 7.01 percent from 7.04 percent in May. The Ministry of Statistics and Programme Implementation will release the retail inflation figure for July at 5.30 pm on August 12. According to economists, headline retail inflation likely cooled in July, led by lower food prices, with prices of certain key items posting a sequential fall.

FIIs return: After relentless selling for nine consecutive months, foreign investors have turned net buyers and invested nearly $836.20 million in Indian equities in July. In August so far, they have bought equities worth $2.06 billion. Analysts say the valuations across the sectors turned attractive after massive corrections in the last few months. Apart from this, the correction in commodity prices, expected slower rate hike by global central banks also improved sentiments among investors.

June quarter earnings: The earnings season has largely been positive. As many as 65 percent of the BSE 500 companies, which have declared result so far, have reported a revenue growth of 37 percent year-on-year, EBITDA and net profit growth of 23 percent and 17 percent respectively, according to Reliance Securities. So far, there hasn’t been any significant disappointments in quarterly earnings as many firms have reported better than expected numbers. While investors had expected muted earnings growth amid input cost pressure, results of many steel, cement, and consumer companies have not disappointed much. In some cases, the numbers have surpassed analysts’ expectations, driven by volume growth and better realisations.