The fall in US inflation, better earnings growth in June FY23 quarter, consistent buying by FIIs, and a decline in the US dollar index lifted the domestic equities to a four-month high on August 11. With the consistent recovery in markets from June lows, investors are now richer by around Rs 39 trillion (lakh crore).
The BSE Sensex rallied more than 500 points to 59,333, and the Nifty50 rose 124 points to close at 17,659, the highest closing level since April 11. The broader market, too, participated in the rally.
The BSE Midcap and Smallcap indices gained 0.8 percent and 0.5 percent, respectively. All sectors but Metal and Telecom, helped the market rise. Bank, Finance, IT, Consumer Durables, and Realty indices gained more than one percent each.
The US inflation came in at 8.5 percent in July 2022, declining from 9.1 percent, the highest in last more than 40 years, in June following the correction in oil price. This cheered markets as the probability of recession is lower now, but the Federal Reserve is expected to continue rate hikes in coming policy meetings to bring inflation back to 2 percent level.
"On an annual basis, the CPI decelerated from an increase of 9.1 percent in June 2022, reflecting better numbers on a monthly as well as annual basis compared to estimates. Though it’s an improvement, it’s not sufficient to stop the Federal Reserve from ploughing ahead with more aggressive tightening of monetary policy to check inflation. Moreover, it also lowers the probability of recession ahead," Mitul Shah - Head of Research at Reliance Securities said.
Also read - The RBI has done a fine job of managing the rupee’s fall
The US dollar index fell further, trading below 105 levels, down from 109 levels in mid-June 2022, while in India, the inflow of FIIs continued as they net bought Rs 9,500 crore worth of shares in August so far, the first positive month against the outflow in previous 10 straight months.
India will release its July inflation number on Friday (August 12), which is expected to be below 7 percent. If that comes true, then it would be a third straight month of decline in CPI numbers on a sequential basis. In April, India's inflation hit a high of 7.8 percent.
"There is more evidence that inflation in India has peaked for now, and it is likely to slow faster than RBI’s published trajectory, coming into the target band by October, according to our latest tracking estimates," Rahul Bajoria, MD and Chief India Economist at Barclays India said.
Barclays India expects a CPI inflation of 6.65 percent on-year in July, as the decline in some food prices, coupled with the lagged effect of fuel-tax cuts, feed through. Core inflation should stay broadly steady.
Also read - Taking Stock: Indices hit four-month high post US inflation data, Nifty tops 17,600
With the gradual improvement in market sentiment, investors' wealth increased by more than Rs 39 lakh crore from June lows as the BSE market capitalisation jumped to Rs 274.13 lakh crore on Thursday, up from Rs 234.86 lakh crore on June 20.
In August so far, the BSE market capitalisation has increased by Rs 7.5 lakh crore.
Mohit Nigam, Head - PMS at Hem Securities, believes that strong corporate earnings and return of FII buying are supporting the growth momentum in the markets. This rally is likely to continue and investors can selectively add good quality stocks in a staggered manner, Nigam suggests.
The volatility index lost momentum, maybe after US inflation data, which also aided the market sentiment. India VIX, which measures expected volatility in the market, fell 6.29 percent to 18.36 levels on Thursday.
As many as 287 stocks hit the upper circuit today against 139 stocks hitting the lower circuit. That apart, a total of 132 scrips touched a 52-week high (of which 53 stocks are at a record high) while 35 stocks hit their one-year low levels.
Stocks such as Adani Enterprises, AIA Engineering, Deepak Fertilisers, Devyani International, Hindustan Aeronautics, Home First Finance, JK Paper, SKF India, Timken, eMudhra, Metro Brands, Vadilal Industries, and Mindspace Business Parks REIT touched their record high.
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