Monetary policy over, stock investors' focus shifts to inflation data

New Delhi [India], August 7 : With the Reserve Bank of India's monetary policy committee meeting over on Friday, the focus of Indian stock market investors will now shift to inflation data, both in India and the US, expected next week.
Inflation in the US is currently at a multi-decadal high. In India, retail inflation has been over the Reserve Bank of India's upper tolerance band of 6 per cent for the sixth consecutive month in a row in June. Retail inflation was at 7.01 per cent in June.
Inflation data for July in the US and India will be released on Wednesday and Friday, respectively.
Meanwhile, the rally in Indian stock indices has been continuing for the past three weeks on account of the return of foreign portfolio investors after nine long months as well as inflation seemingly plateauing. Foreign portfolio investors becoming net buyers in Indian stock markets again after nine long months renewed the investors' sentiment.
In July, FPIs bought equities worth Rs 4,989 crore and became net buyers after nine months, National Securities Depository (NSDL) data earlier showed.
In the past one month, the indices - Sensex and Nifty - gained around 7-8 per cent each, respectively. Notably, the Indian stocks recorded their best weekly performance during the week to July 22 marking its best week since February 2021.
"Overall, profit booking from higher levels is expected in upcoming sessions and crossing above 17,500 will attract more buying in stock specific," said Palak Kothari, Senior Technical Analyst at Choice Broking.
On a macroeconomic front, the upcoming week is expected to be jam-packed for investors.
"The global markets are likely to dance to the tune of the Inflation figures to be released by the United States and China. Back home, market players will turn to the Indian CPI print for hints about the economy's trajectory," said Apurva Sheth, Head of Market Perspectives at Samco Securities, adding that it appears like the bulls are running out of steam.
For the record, the monetary policy committee of the Reserve Bank of India has unanimously decided to raise the repo rate by 50 basis points to 5.40 per cent in order to contain the persistently high inflation. Today's hike takes the repo rate above pre-pandemic levels of 5.15 per cent. The three-day monetary policy committee meeting commenced on Wednesday.
Raising interest typically suppresses demand in the economy, thereby helping inflation to decline.
In line with the global trend of monetary policy tightening to cool off inflation, the RBI has so far hiked the key repo rates -- the rate at which the central bank of a country lends money to commercial banks -- by 140 basis points.
The MPC reiterated that retail inflation is projected to remain above the upper tolerance level of 6 per cent through the first three quarters of 2022-23.
Inflation projections are retained at 6.7 per cent in 2022-23, RBI Governor Shaktikanta Das said while announcing the outcomes of the monetary policy.