Inflationary Risks: Somber macros to dent equities (IANS Market Watch)


Rising risk of inflationary pressure as shown by the latest macro economic data will dent the equities market’s upward trajectory during the week ahead.

Besides, rising bond yields in the US, expensive valuations and rising Covid-19 infections will dampen investors’ sentiments, market observers cited.

“The CPI and IIP numbers that came out on Friday in India could dampen the equity markets early next week,” HDFC Securities’ Retail Research Head Deepak Jasani said.

“14,862 is a crucial support on falls for the Nifty while 15,336-15,432 is the resistance band. A fall below 14,862 could result in sharper and broader sell-off.”

Accordingly, the retail inflation, measured in Consumer Price Index (CPI) rose to 5.03 per cent in February from January’s rise of 4.06 per cent.

India’s factory output, measured in terms of the Index of Industrial Production (IIP), witnessed a contraction of (-)1.6 per cent in January.

“While the long term structure of the market continues to remain positive, it may face some hurdles in the near term due to concerns over the bond yields, commodity prices and risk of increase in inflation,” said Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services.

“Even Nifty valuation at ’21x FY22 EPS’ is not inexpensive and demands consistent delivery of earnings.”

At present, crude oil hover over $68 per barrel. This price level is expected to exert pressure on the currency as well as stroke domestic inflation.

“The core of the market’s worries is the rising bond yields across developed markets, especially the US, the high oil prices which are showing a tendency to hold on to the higher perches, and the consequent likely adverse impact on the price level in many larger economies like India and China,” said Joseph Thomas, Head of Research, Emkay Wealth Management.

“There is an expectation that the demand for oil could go up by 5 million barrels per day, the rise accounted for mainly by China, India, and East Asia.”

Furthermore, bond yields are expected to remain volatile in the week ahead.

“The market will be keenly focusing on the upcoming US Fed policy meeting scheduled to be held on the 16th and 17th of March,” said Vinod Nair, Head of Research at Geojit Financial Services.

“The market is waiting for a confirmation from Fed that an accommodative stance will be maintained even during an elevated inflation forecast.”

In addition, investors will look forward to the macro-economic data points of WPI (Wholesale Price Index) and India’s trade figures.

(Rohit Vaid can be contacted at