Inflation data, US monetary policy to influence stock markets, say analysts

Further, the US central bank’s monetary policy meeting for its stance on continuing stimulus measures is another factor that market participants are observing.

“This week, India’s inflation data for May will be the key economic driver in the domestic market. On the global front, the Fed’s monetary policy meeting will be in focus as the market awaits its stance on continuing stimulus measures,” news agency PTI quoted Vinod Nair, the head of research at Geojit Financial Services.

Nirali Shah, the head of equity research at Samco Securities said the US FOMC meeting would keep markets volatile.

During the last week, the 30-share BSE benchmark jumped 374.71 points or 0.71%. The 30-share benchmark touched a lifetime high of 52,641.53 points on Friday.

“Investors will continue to monitor economic data and Covid-19 related updates,” said Sumeet Bagadia, executive director of Choice Broking.

“The key factors to watch out for remains the pace of vaccination and the re-opening of the economy. We would also be watchful of trends in global liquidity and the policy stance of central bankers,” said Shibani Sircar Kurian, senior EVP and head of equity research, Kotak Mahindra Asset Management Company.

Besides, the movement of brent crude, rupee and foreign institutional investors (FIIs) would also be watched by investors.

Shrikant Chouhan, executive vice-president, equity technical research at Kotak Securities said: “Markets are expected to monitor the spread of monsoon in the coming weeks, daily new case count and easing of lockdown restriction.”

Inflation expectations

Retail inflation in India was 4.29% in April but is expected to rise in the coming months.

The seasonal price pressures for vegetables are around the corner. Fuel price inflation is unlikely to ease unless the government begins to prune taxes as they form a large part of the rise in fuel prices of late. Commodity prices are on the rise globally.

Logically, this would lead to a tightening of monetary policy or a withdrawal of accommodation at the very least by the Reserve Bank of India (RBI). But that is unlikely to happen this time around.

Economists at QuantEco believe that monetary policy will look through the rise in inflation this time. The key reason is that there isn’t enough demand pull for the RBI to respond.

With inputs from agencies.