Indian Shares Poised for Uptick as U.S. Inflation Data Sparks Rate Cut Hopes

Indian equities are anticipated to commence trading on an upbeat note on September 14, 2023, driven by expectations of increased foreign capital inflows. This optimism stems from recent U.S. inflation data, which has strengthened the likelihood of a Federal Reserve rate reduction.

The GIFT Nifty, a derivative product based on the Nifty 50 Index, stood at 25,076 points at 08:20 a.m. IST, indicating that the NSE Nifty 50 would open above its previous close of 24,918.45. This positive outlook comes despite the benchmark index experiencing a 0.5% decline in the previous session due to profit-taking ahead of the U.S. inflation report.

U.S. consumer prices showed a slight increase in August 2023, with underlying inflation displaying some persistence. Following this data, the probability of a 25-basis-point rate cut by the Federal Reserve on September 18, 2023, rose to 85% from 66% a day earlier, according to the CME FedWatch Tool. Concurrently, the likelihood of a more aggressive 50 basis point reduction decreased to 15% from 34%.

Asian markets responded positively to this development, with the MSCI Asia ex-Japan index rising 1%. Wall Street equities also recorded gains overnight, reflecting a broader market optimism.

Two analysts suggest that Indian equities are well-positioned to attract a significant portion of capital flows from the U.S. to emerging markets following the anticipated Fed rate reduction. This influx could potentially drive the markets higher.

A rate cut in the United States could stimulate growth and lead to increased discretionary spending, potentially benefiting information technology and pharmaceutical companies that derive a substantial portion of their revenue from the U.S. market.

On September 13, 2023, both foreign and domestic institutional investors were net buyers of Indian shares, purchasing stocks worth 17.55 billion rupees ($209 million) and 2.31 billion rupees, respectively.

Investors are now awaiting India's consumer inflation data, scheduled for release after market hours on September 14, 2023. A Reuters poll of economists indicates that consumer inflation likely remained below the Reserve Bank of India's 4% medium-term target for a second consecutive month in August 2023, aided by a moderation in food price increases.

Several stocks are expected to be in focus:

• NBCC has announced a deal with Mahanagar Telephone Nigam for a project valued at 16 billion rupees.
• Tata Steel has signed a 500 million pounds grant funding agreement with the UK government.
• State Bank of India has entered into a shareholder agreement with Bank Keb Hana Indonesia and Bank SBI Indonesia.

As the Indian market navigates these developments, the interplay between global economic factors and domestic indicators continues to shape investor sentiment and market dynamics.