Benign US inflation buoys market to 3-month high; rate hike fears ease

Sensex has gained in six of past seven weeks

The benchmark Sensex gained nearly one per cent on Friday, tracking gains of Asian peers, after soft inflation data in the US eased investor fears of fast interest rate hikes by the Federal Reserve. 

US consumer prices rose less than forecast in April, weighing on the dollar and improving investor sentiment. The MSCI Asia-Pacific index (excluding Japan) rose 0.9 per cent. Soft inflation would allow the Fed to increase rates at a gradual pace.

The benchmark Sensex and Nifty gained 0.82 per cent, each led by gains in the banking stocks. The Sensex ended at 35,535, its highest close in three months and two per cent shy of its all-time high touched in late January. The Nifty closed at 10,806.5.

“Market rallied supported by earnings and lower-than-expected US inflation, which eased worries of faster rate hikes by Fed. Investors will closely watch data on domestic inflation and the Karnataka election results, which are due next week,” said Vinod Nair, head of research, Geojit Financial Services.

The biggest gainer among Sensex stocks was Asian Paints, which rose 6.2 per cent to hit a record high. The company posted double-digit growth in volume for its decorative paints business, dismissing fears that it is losing market share. Shares of private sector lenders, including HDFC Bank, ICICI Bank and State Bank of India rose more than one per cent each.

Among the biggest losers on the Sensex were Bharti Airtel, which fell 6.4 per cent and Sun Pharma which dropped 5.1 per cent.

On Friday, foreign institutional investors (FIIs) sold shares worth Rs 3.25 billion, while their domestic counterparts pumped in Rs 11.6 billion.

The blue-chip company indices have gained in six of the past seven weeks, recouping the 10 per cent drop seen in February and January. The gains in the market have come despite weakening of the rupee and surge in crude oil prices. The rupee is down six per cent from its 2018 peak in early January. Brent crude oil prices are up 16 per cent this year and 52 per cent in the past one year.

Compiled by BS Research Bureau

Nair said the surging oil prices and a weak rupee were expected to impact inflation, “while easing geopolitical tension will add fuel to the market”. Markets are expected to remain volatile in the coming week as investors react to the Karnataka poll results, scheduled for May 15.

“We will see volatility until the elections and maybe also beyond that. There’s more downside risk if the BJP loses ground as the market will add that to its list of worries,” said Sunil Sharma, chief investment officer, Sanctum Wealth Management. On a year-to-date basis, the Sensex is up 4.34 per cent. In dollar terms, the index is down around two per cent due to the weakness in the rupee. FIIs have pulled out $1.5 billion from domestic equities this quarter.