India stocks end down for second day as inflation quickens
10:30, 14 December 2021
Indian stock indices ended lower for a second successive day this week on concerns of accelerating inflation that could prompt the government and the central bank to announce growth-restricting measures.
The bellwether Bombay Stock Exchange’s Sensex fell 0.29% from its previous close at 58,117 points. The most-traded National Stock Exchange’s (NSE) NIFTY 50 index was 0.25% lower from its previous closing at 17,324.9 points.
Seven out of the 11 sectoral indices ended in the negative zone, though the fall was less than 1%.
The PSU Bank index fell the most with a 0.7% decline. The index of media companies’ stocks rose for a second day to close to 1.56% higher. The advance-decline share ratio – the number of advancing shares divided by the number of declining shares – on the NSE was 884-976 today.
“Due to elevated levels of inflation and weak Asian markets, the domestic indices extended losses ahead of the US Fed policy announcement. Moreover, India’s wholesale inflation soared to a 12-year high of 14.23% y-o-y, underpinned by mineral oil, base metals, crude petroleum and natural gas,” said Vinod Nair, head of research at Geojit Financial Services.
Inflation accelerates
The latest data released after the close of stock trading hours on 13 December showed that inflation accelerated in November despite the cut in duty on fuel announced by the federal and provincial governments during the month.
India’s inflation based on the consumer price index rose to 4.91% on-year in November compared with 4.48% in October, according to data provided by the government.
Though the inflation rate is within the target set by the central bank, concerns are mounting that its acceleration for a second successive month in November will prompt action or measures by the government.
Faster inflation erodes the value of equity assets and lures investors to other assets such as gold and foreign currency.
“With input price pressures forcing producers to raise prices in many sectors, the November 2021 CPI inflation accelerated slightly faster than we had expected, shrugging off the favourable base effect and the cut in fuel taxes,” said Aditi Nayar, chief economist at rating agency ICRA.
“Moderation in the CPI inflation for fuel and light, pan, tobacco and intoxicants, and miscellaneous items was outpaced by the rise in the inflation for food and beverages, housing, and clothing and footwear,” she added.
Rupee falls
The stock market today was also weighed down by the fall of the Indian rupee to its lowest level since June 2020 of 75.88 due to the rising Omicron cases in the country.
“The fall is largely driven by the fear of the rapid spread of the Omnicron variant…post the UK PM’s warning of a ‘tidal wave’ of new cases, and WHO stating it as a high global risk,” said Nish Bhatt, chief executive officer at Millwood Kane International.
Investors across the globe are waiting for the outcome of the US Federal Reserve’s meeting that may announce an accelerated pace of liquidity tightening. A quicker tapering, which in other words means monetary tightening by the Fed will lead to an outflow of fund flows from emerging markets such as India.
“This is a volatile week especially because Omicron concerns seems to be building up. Also, there are expectations that Fed will speed up the process of tapering the asset purchase program, keeping the uptrend in USD intact,” said Emkay Global Financial Services in a note.
Emkay Global noted that if the Fed downplayed aggressive rate hikes, conceding that Omicron would pose a downside risk to employment and spending, there could be some pullback in the US dollar’s rise and a hawkish projection would appreciate the greenback further.
The investment bank expects the rally to continue towards 76.25/76.30 with support being around 75.60.
More meetings
Equity markets in the coming days would be guided by meetings of key central banks across the world including the European Central Bank and the Bank of Japan as they decide on their respective monetary policies.
The central banks’ action on rate, cash in their banking system, and the resolve to boost economic growth rate would guide global equities and currencies, said Rohit Singre, a senior analyst at LKP Securities.
“The overall range for Nifty50 is coming at 17500 on the higher side and 17000 on the lower side right now. It is trading in between so one can expect a sideways momentum in coming sessions and final direction will be clear once we see either side breakout from the mentioned range,” Singre added.
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