Indian stock indices surged higher during Friday's trading session, reaching a new peak thanks to the recent decline in US inflation, impressive TCS results, and overall positive market sentiment.
The Sensex concluded the day up by more than 600 points, or 0.8%, closing at 80,519 points, while the Nifty finished 186 points higher, also up by 0.8%, at 24,502 points. Sectoral indices displayed a mixed performance on Friday.
The unexpected drop in US consumer inflation in June has sparked anticipation for a potential interest rate cut sooner than expected, possibly in September.
Both the Sensex and Nifty have delivered returns of 11-13% collectively in the fiscal year 2024-25. Robust investments from foreign and domestic institutional investors have been bolstering the stock market.
Vinod Nair, Head of Research at Geojit Financial Services, noted that various positive factors have propelled the market out of its stagnant phase. The strong performance of the IT sector leader and the decline in US inflation have injected optimism into the market. The likelihood of a rate cut in September is increasing, as reflected in the weakening dollar index. With the ongoing earnings season and the upcoming budget, stock-specific movements are expected to gain momentum, particularly in the IT sector due to the promising earnings and outlook.
Moving forward, the markets will respond to the release of India's June retail inflation data, which is scheduled to be published later this Friday.
In May, India experienced a slight softening in its retail inflation rate, continuing the trend of moderation. However, food prices remained a persistent concern for policymakers.
The annual retail inflation rate in May dropped to a 12-month low of 4.75 percent, slightly lower than April's 4.83 percent. The Consumer Price Index, or retail inflation, stood at 5.7 percent in December last year and has been on a downward trajectory since then.
While India's retail inflation falls within the Reserve Bank of India's comfort range of 2-6 percent, it remains above the ideal 4 percent mark. Inflation has been a significant issue for many countries, but India has managed to navigate its inflation levels effectively.
Market analysts anticipate this positive momentum to continue, driven by expectations of strong quarterly results, the possibility of a rate cut, and a pre-budget rally. The IT sector is expected to be in the spotlight as major IT companies announce their results. Additionally, market reactions to India's inflation data, set to be released after trading hours on Monday, will be closely watched.
Key corporate results to look out for next week include Jio Financials, HDFC Life, Asian Paints, LTI Mindtree, Infosys, Havells, Wipro, JSW Steel, Paytm, among others, according to Siddhartha Khemka, Head of Retail Research at Motilal Oswal Financial Services Ltd.
Looking ahead, market participants will be closely monitoring the policy decisions of the new government. The finance ministry, now headed by Nirmala Sitharaman, will be closely observed for any new initiatives. The full Budget for 2024-25 is scheduled to be presented on July 23.
