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Three sets of data released in the past 24 hours have come as a relief for investors and equity markets. One is relatively steady inflows from systematic investment plans (SIPs) into mutual funds in February.
SIP inflows moderated a bit from January and total net inflows into equity mutual funds declined sequentially last month. However, readers should note that inflows into mutual funds are not falling off the cliff. In fact, inflows continue to rise on a year-on-year basis. This should provide reasonable support for markets.
The second comforting data print was inflation. Consumer price inflation (CPI) eased to 3.6 percent in February and dropped below the Reserve Bank of India’s 4 percent target. And, unlike the latest moderation in inflation in the US, which is expected to reverse once tariffs take effect, prices in India are expected to remain soft, aiding monetary policy easing.
“We expect benign inflation readings to sustain. Headline inflation is likely to rise to ~3.8 percent in March, but higher crop output, subdued demand and low manufacturing costs should keep CPI inflation below 4 percent in H1 2025,” say economists at Nomura Research.
The third one is a recovery in manufacturing. The index for industrial production (IIP) increased by 5 percent in January year on year from 3.5 percent in December. The improvement is driven by higher growth in the mining and manufacturing sectors. The readings indicate sequential improvement in economic activity.
Soft inflation and below-trend economic growth can help the central bank maintain accommodative monetary policy. “The latest CPI and IIP numbers are very encouraging for the Indian economy. Monetary policy must now step up and deliver, in order to support the economy against the likely external shocks,” writes Manas Chakravarty.
However, there is no guarantee that the above data points will hold good in coming months. The biggest risk to markets now come from outside India, in particular trade tensions and a deteriorating global economic outlook.
A slowdown in global demand can hurt exports and services sectors.
Fearing demand slowdown, particularly in the US, analysts are already paring down their revenue growth estimates for IT, as our Chart of the Day explains. Any sharp deterioration in the global economy can dampen investor sentiments further and crimp inflows into domestic market.
Therefore, the main events to watch out for continue to be the US and the effect of its actions on global trade. But if these domestic data moves stay the course, then domestic investors could be cushioned from external shocks to an extent.
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R Sree Ram
Moneycontrol Pro
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