From CPI inflation to FPI trends: Five factors that may impact share market this week

The Indian share market is expected to see positive trading this week as ease in inflation in the United States and improvement in the Covid-19 situation in China will boost investors’ appetite for riskier assets. Investors await CPI inflation and WPI data for definitive cues as the corporate earnings for the September quarter enter the last lag. Besides, the market sentiment will continue to be driven by the movement of foreign fund flows as well as trends in the rupee and Brent crude prices.

Last week, Indian equity benchmarks continued their winning streak for the fourth straight week as sentiments were lifted following a decline in the U.S. inflation for October. The markets also got a boost as China eased some of its strict anti-Covid measures. The BSE benchmark Sensex gained 844 points, or 1.4%, at 61,795 during the week ended November 11, while the Nifty rose 232 points, or 1.3%, to 18,350.

Here are five factors that will impact the domestic share market this week:

Global equities trend

The trend in the global equities market will continue to affect the domestic share market. In the U.S., the crucial Industrial and Manufacturing Production data for October will be out on November 16 and housing sales data for October will be released on November 18. Investors will also keep a track on Producer Price Index (PPI) and Core PPI for October, which will be published on November 15. Besides, improving Covid-19 situation in China will also boost global market sentiments.

Last week, global stocks saw some uptrend as cooler U.S. inflation fueled speculation that the Federal Reserve will slow the pace of interest rate tightening later this year, pushing the dollar to its biggest two-day drop in 13 years. Market experts expect the Federal Reserve to raise rates by 50 basis points at its next meeting in December, while the probability of a 75 bps hike has fallen in the backdrop of ease in inflation.

Macroeconomic data

A flurry of macroeconomic data will be released this week which can set tone for the Indian equities. The week begins with Consumer Price Index (CPI) inflation and Wholesale Price Index (WPI) inflation data which will be released today. The trade exports and imports and trade deficit numbers will also be out today.

Investors will also keep an eye on Prime Minister Narendra Modi’s visit to Bali, Indonesia, to attend the 17th G-20 (Group of 20) Summit. The comments of global leaders on key agenda such as food and energy security; health; and digital transformation will be closely watched.

FPIs flow

Foreign portfolio investors (FPIs) have pumped in around ₹19,000 crore in Indian share markets so far this month amid easing trend in the U.S. inflation and correction in the dollar. The FPI investment witnessed trend reversal after a net withdrawal of ₹8 crore in October and ₹7,624 crore in September. Since January, the FPIs have flushed out ₹1.40 lakh crore from the Indian market.

According to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, "FPIs have bought equity worth ₹18,979 crores in November. In fact, they were buyers in all trading days of the month till November 11. There is a clear change in the approach of FPIs since they bought even when the dollar and U.S. bond yields were rising. Now the situation has changed to be more favourable. Since inflation in the U.S. is showing a moderating trend, dollar and US bond yields are declining.”

“This means FPIs are likely to buy more in the coming days. Also, India has the best earnings growth outlook among large economies. However, valuations are getting stretched," he added.

WPI and CPI inflation data

The Consumer Price Index (CPI) inflation and Wholesale Price Index (WPI) inflation reading for the month of October are scheduled to be released this week, which could impact trading on Dalal Street. The Ministry of Statistics and Programme Implementation will release retail inflation data today post market hours, while the WPI print will also be out on this day.

According to market experts, CPI inflation, one of the key factors for deciding lending rates by the central bank, is expected to ease to 6.7% in October from 7.41% in September. However, the inflation will still remain above MPC’s tolerance limit of 6% for the 10th consecutive month.

In September, India’s retail inflation surged to a five-month high of 7.41% from 7% in August, driven by sharp rise in food prices. However, the WPI number eased to 10.7% for September, compared with 12.41% recorded in August 2022. The number remained in double digits for the 18th consecutive month.

Rupee and Brent crude

Traders will also keep an eye on trends in rupee and the movement of Brent crude oil. On Friday, the domestic currency appreciated by 62 paise to close at 80.78 against the U.S. dollar, as ease in U.S. CPI data impacted demand for the greenback. Besides, sustained fund inflows by foreign investors also supported the rupee.