June CPI inflation may inch up to 5%; how will it impact the Indian stock market? Experts weigh in

India's Consumer Price Index (CPI)-based inflation, or the retail inflation, for June may register a rise, but it will unlikely have any significant negative impact on the Indian stock market, which is at record high levels, according to experts.

India's retail inflation has been below 6 per cent mark since September last year. The Reserve Bank of India's (RBI) medium-term target for consumer price index (CPI) inflation is 4 per cent within a band of +/- 2 per cent.

Inflation remains sticky even as the central bank is resolute to bring it down below 4 per cent. In June, the rise in inflation print could be primarily because of food inflation.

"CPI inflation is likely to edge up to 5 per cent in June from 4.75 per cent in May due to food inflation, primarily on account of high vegetable prices. Core CPI inflation is seen bottoming out, but it is likely to remain muted at 3.2 per cent in June," said Nirmal Bang Institutional Equities.

The brokerage firm believes core CPI, which excludes volatile food and fuel prices and is closely observed by the RBI to decide its monetary policy, is bottoming out but may remain muted at 3.2 per cent in June.

Nirmal Bang underscored fewer than 5 per cent of service companies opted to share additional cost burdens with their clients by lifting selling prices in June, resulting in only a moderate rate of charge inflation.

"We see some bump-up in the trajectory for CPI inflation based on higher food prices even as a high base is likely to support moderation in the coming months. We expect food inflation to see material moderation only from September on the back of fresh kharif crop arrivals. We expect CPI inflation to average nearly 4.8 per cent in FY25 mainly on account of food price volatility," said Nirmal Bang.

Market to focus on Budget, Q1 earnings

Market experts underscore that the mild spike in June retail inflation is discounted, so it will not impact market sentiment. The major triggers for the market are the upcoming Union Budget 2024 and the June quarter earnings of India Inc.

"June CPI inflation is likely to come around 4.87 per cent. This will not impact the market since it will be on the expected lines. The market will respond to Q1 results, and expectations surrounding the Budget will move the market inthenear term," said VK Vijayakumar, Chief Investment Strategist, Geojit FinancialServices.

G. Chokkalingam, the founder and head of research at Equinomics Research Private Ltd, also believes June 2024 retail inflation may inch up to level around 4.81 per cent due to flare up in some vegetable prices.

He said markets are most unlikely to be impacted as monsoon performance turned surprisingly normal as compared to severe deficit at subdivisions level in the whole of June. Moreover, inflow of new investors into the capital markets continues at the robust rate of 10 to 12 lakh per week. Therefore the positive momentum in the markets may continue in the markets in the short term.

Aamar Deo Singh, Senior Vice President- Research, AngelOne, pointed out that the CPI data for June is likely to be impacted by expectations of increased inflation due to growing costs for food items, veggies, and telecom tariffs.

"Currently, it seems that markets have taken into account the 4.8-5 per cent overall consensus projection. The markets may be impacted by any notable departure from this, but in the medium run, both the domestic and international macroeconomic conditions remain favourable and supportive of the markets," said Singh.

Chintan Bhatt, the director of listed investments at Waterfield Advisors, observed inflation tends to hurt equity markets, resulting in a rise in interest rates and then the cost of equity. 

Bhatt said that when seen minutely, value stocks belonging to sectors like commodities may do well with the rise in prices of their goods, whereas growth stocks, which are consumer-facing businesses, may not do well, as the rise in inflation can hit consumer demand, thereby impacting these companies' profit and loss statements.

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