Active, but more action to follow

The Indian stock market continued its upward trajectory⛰️, registering its best week since late June. This positive momentum was primarily driven by favourable global cues, particularly the anticipation of the US Federal Reserve's potential interest rate cut✂️. Following a short pause, the Nifty 50 and Sensex resumed their upward trend🪜, reaching new all-time highs🥇. The Nifty 50 surged by 2%, while the Sensex gained 2.10%, marking their best weekly performance since June.

The strong performance was primarily driven by a rise in consumer stocks, fuelled by optimism about demand revival and volume growth due to a stable monsoon☔. Additionally, IT companies, which generate a significant portion of their revenue from the US, saw a 2.8% increase, anticipating a likely US Fed rate cut next week.

 Inflation steady

The Indian CPI inflation💸rose slightly to 3.7% in August due to higher food prices, although core inflation remained steady at 3.3%. That is, food prices contributed to the rise in headline inflation, but they were still lower than in the previous month. Core inflation, excluding food, beverages, and fuel, remained stable, suggesting that underlying price pressures are easing. Experts expect core inflation to average 3.7% in FY2025, with a potential downside if global crude oil⛽prices continue to fall.

Factory activity continued to be resilient, and the same is expected in August. The industrial production index (IIP) grew 4.8% in July🏭.

Given the comfortable domestic inflation and benign global conditions, the Reserve Bank of India (RBI) will likely change its policy stance to neutral in October. This would allow the RBI to lower interest rates gradually, starting in December, as inflation begins to decline towards 4% in FY2026🗓️. However, global factors such as the global monetary policy cycle, uncertain global demand, and forex volatility will likely influence the RBI's decision.

Watch out for the decline in oil prices

Recently, the decline in crude oil prices has grabbed the spotlight. Global economic concerns and weaker demand from major oil importers like the US and China have driven the current decline🌏. Rising worries about softening demand in China, especially amidst the surge in electric vehicle sales, have further contributed to the downward pressure on oil prices. As such, crude oil prices have fallen over 29% from their 52-week high of $98 per barrel to around $70 per barrel🛢️.

This decline has had a significant impact on the Indian market, particularly on state-owned oil and gas companies like Oil India and ONGC⛽. Shares of these companies have experienced sustained selling pressure, mirroring the broader correction in the BSE Oil & Gas Index.

While the recent correction in global oil prices can help improve India's current account deficit and aid inflation, the economic impact will be more substantial if oil prices remain at lower levels for an extended period. As we advance, OPEC expects the demand to grow, albeit slightly slower. However, many experts cite concerns about the sustainability of demand from China, given the economic slowdown in the world's second-largest oil consumer. As such, it will be a while before the same thing starts to be reflected in our petrol or diesel prices💰.

However, as the third week of September unfolds, investors should closely watch key market triggers such as new listings🔔, domestic and international macroeconomic data, US Fed interest rate decisions, foreign fund inflows, crude oil prices trajectory, and other global factors. Stay tuned for more.

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