Over the last week, markets globally were positive. Even the Nifty ended the week 1% up. A weakening jobs market in the US reduced fears of a rate cut by the Fed, which is positive since it cuts chances of the US falling into a recession.
Inflation numbers are expected to be released next week in both India and the US. Over the last couple of years, the markets have been very reactive on news around inflation and interest rates.
What to expect?
If the markets could react so positively on the weakness in jobs data from the US last week, inflation would be a more hardcore catalyst for the markets to move.
Oil prices had seen a sharp increase in prices from May to September 2023, thanks to the conflict in the Middle East, and talks of supply cuts by major oil producing economies.
However, in October, oil prices came off from a high of US$ 90 a barrel, down to around US$ 80 now. This has the potential to provide some respite to inflation numbers of October, compared to the previous month, and last year.
But for India, food inflation has been a persistent problem, which can be a spoiler. There have been concerns around food inflation, after the release of some data points around the summer harvest, winter planting, and reservoir levels.
What else is up?
While inflation can be a tricky data point to predict, and can lead to some uncertainty, there have been positive sentiment around, especially because of 2QFY24 results.
Earnings for the Nifty 50 companies have been largely in-line with expectations. Additionally, the traction seen in earnings, management commentary and outlook are tilting towards a marginal upgrade in earnings for FY24 and FY25.
While there have been downgrades in the technology sector, owing to continued global weakness, upgrades in sectors like automobiles and banking more than offset it.
India is expected to continue outperforming the global markets given strong economic growth, robust corporate earnings, and better control on the inflation-interest equation. Moreover, structural forces only add to the long-term positives for India.
However, there could be near-term headwinds, which may cause transient dips in the market. Poor inflation data or noise around the upcoming elections can be a couple of spoilers.