After IIP, markets look to inflation data for revival cues

Investors are looking forward to the government's inflation data for April this Monday to lift sagging market sentiments in the wake of disappointing IIP data for March that has renewed concerns over fundamental weakness in the economy, analysts have said.

"Sentiments have turned adverse and the short-term trend has become bearish as of now. The degrowth in IIP data has hurt the sentiments of marketmen and further downside cannot be ruled out," Rakesh Goyal, Vice President, Bonanza Portfolio said.

The next big trigger will be the inflation data for the month of April. Only a big positive surprise in the inflation data will improve the sentiments, otherwise the short-term trend will remain negative only, he added.

However, experts do not see an immediate relief on the inflation front.

"...The upcoming WPI (Wholesale Price Index) data on 14 May will overshadow Industrial Production reading. We expect core inflation to rise from 4.7% year-on-year in March to above 5% in April," said Sonal Varma, Economist, Nomura India.

India's benchmark equity indices declined for a third week in a row as both the Sensex and Nifty reported highest weekly loss (over 3%) for the year so far.

A weak rupee, fears over euro-zone crisis and contraction in industrial production data pulled down BSE Sensex by 538 points to 16,298.98 last week.

Besides inflation, market experts are also keeping an eye on crude oil prices.

"The contraction in IIP numbers has renewed hopes for further rate cuts from RBI. However, that will also depend on how inflation moves and where crude oil prices will head in coming days," Milan Bavishi, Head Research, Inventure Growth & Securities said.

While GAAR being deferred by a year has taken the short-term overhang on FII sentiments away, the European region reflects uncertainty due to political change in France which may keep markets volatile, market participants said.

Going forward, in the absence of any near-term positive triggers, the pressure is likely to remain on the benchmark indices as global sentiment also continues to be weak, an expert said.

Industrial production fell 3.5% in March, for the first time in five months. The contraction in March was surprising because it expanded by 4.1% just a month ago in February.

Domestic stock markets are also likely to be impacted by the global risk environment, brokers said.