Awaiting Christmas cheer!

The week began with some selling pressure in the Indian equity market due to ongoing global tensions in the Middle East. However, this was balanced by expectations of a potential Fed rate cut and the easing of inflation💸. Despite this, cautious investor sentiment led to a narrow trading range for Indian shares. The week concluded with a slight uptick, with the Nifty 50 index gaining ~0.5% and the Nifty 500 index rising ~0.3%.

New RBI Governor sparks hope for Growth-Focused monetary policy

The recent appointment of Sanjay Malhotra as the new Governor of the Reserve Bank of India (RBI) has generated significant buzz in the financial markets🏦. This unexpected change, replacing Shaktikanta Das, who served two terms, has raised expectations of a shift towards a more growth-oriented monetary policy. Economists are increasingly predicting a potential rate cut in the upcoming February policy review🔭.

Malhotra’s immediate task will be tackling inflation.

However, policymakers face a complex challenge in balancing growth and inflation.  Incoming inflation data over the next three months will be critical in determining the MPC's course of action. Any unforeseen spikes in retail inflation could disrupt the committee's calculations and plans🌋.

While the new Governor's arrival brings hope for a more growth-focused approach, the MPC's decisions will ultimately be driven by evolving economic data and the need to balance growth and inflation objectives⚖️.

Easing inflation fuels hopes for a rate cut

India's economy received a boost in November📅 as retail inflation fell back within the central bank's target range, paving the way for a potential interest rate cut in early 2025. The Consumer Price Index (CPI) eased to 5.48%, down from a 14-month high of 6.21% in October. A seasonal drop in vegetable prices primarily drove this decline🍆. 

Economists are optimistic that the downward trend in inflation will continue, allowing the RBI to shift its focus towards supporting economic growth. The RBI has projected CPI inflation at 4.8% for the fiscal year 2025. However, experts caution that the timing of a rate cut will depend on several factors, including global economic conditions and the volatility of food prices. Food inflation, in particular, has remained a concern. Despite the positive inflation data, the RBI remains vigilant about potential price pressures. 

Oil impact

The end of the Syrian Civil War has had a surprisingly muted impact on global oil markets⛽. While Syria is strategically located in the Eastern Mediterranean, it is not a major oil producer, so its return to peace has not significantly affected prices.  Instead, oil prices have faced downward pressure due to Saudi Arabia's decision to cut prices for Asian buyers. Saudi Aramco reduced its premium for Arab Light crude, signalling a potential oversupply in the market. OPEC+, the oil cartel led by Saudi Arabia and Russia, has also decided to maintain current production levels, further contributing to the oversupply🛢️. Analysts predict this trend could continue into 2025 due to a slowing Chinese economy and increased US oil production.

The Indian equity market is anticipated to remain range-bound in the near term. China's stimulus measures have added pressure to the market. While domestic IIP and retail inflation figures were in line with expectations, they remain elevated, casting uncertainty over potential rate cut cycles in 2025, given the strong US economy. However, the upcoming Christmas season could bring some much-needed positivity to the market🎄.

Source: Money Control

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