India’s retail inflation, measured by the Consumer Price Index (CPI), eased to 5.48% in November 2024, down from 5.89% in October. The decline marks the second consecutive month of moderation, bringing inflation closer to the Reserve Bank of India’s (RBI) comfort range of 4-6%. The easing inflation, coupled with industrial output growth of 3.5% in October, is expected to boost market confidence and provide a favorable outlook for economic stability.
Key drivers of inflation moderation
The moderation in retail inflation is primarily attributed to falling food prices, particularly in the categories of vegetables and cereals, which form a significant portion of the inflation basket. The core inflation, excluding food and fuel, also saw a marginal dip, reflecting subdued price pressures in non-essential goods.
“Stable fuel prices and improved supply chains have contributed to easing inflationary pressures, providing much-needed relief to households and businesses,” said an economist at a leading financial institution.
Impact on market sentiments
The decline in inflation has had a positive impact on market sentiments. A stable inflation trajectory reassures investors about the sustainability of economic growth and reduces the likelihood of aggressive rate hikes by the RBI. Equity markets responded positively, with major indices registering gains during the trading session.
For those considering share market investment, sectors such as consumer durables, FMCG, and automotive are likely to benefit from reduced inflationary pressures, as lower input costs improve margins. Analysts expect retail-driven stocks to perform well, supported by higher disposable incomes and festive demand.
Industrial output growth adds to optimism
Adding to the positive sentiment, India’s industrial output grew by 3.5% in October, driven by robust performance in the manufacturing and electricity sectors. This growth indicates improving industrial activity and suggests that the economy is on a recovery path following subdued performances in previous months.
The combination of easing inflation and rising industrial output provides a balanced outlook for policymakers, enabling them to focus on sustaining growth without aggressive monetary tightening.
Challenges and outlook
Despite the positive data, risks remain. Rising global crude oil prices and uncertainties in agricultural production due to erratic weather could exert upward pressure on inflation in the coming months. Policymakers will need to remain vigilant to ensure that inflation remains within the target range while supporting growth.
Conclusion
The easing retail inflation to 5.48% and industrial output growth of 3.5% paint a positive picture for India’s economy, bolstering market confidence. For investors, this creates a favorable environment for share market investment, particularly in sectors poised to benefit from stable price dynamics and industrial recovery. As global and domestic risks evolve, market participants will closely monitor upcoming economic data and policy measures for further cues.
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