Week Ahead: Investors Spooked Over Stagflation and Liquidity

MUMBAI, India – According to experts, the primary move in the equity market in the upcoming week will be largely in tune with the investors’ concerns regarding the inflation numbers on the macro-economic wholesale, the liquidity flows in the global market, and the possible stagflation.

Recently, the inflation points in the macro data, as well as the industrial production, has spooked market players as the numbers suggest that the economy in India is on the way towards an early phase of stagflation.

The economic trend is marked by the concurrent gains in retail inflation while the gross domestic product declines.

With the recent numbers on the economy, stagflation concerns are going around in the market as well as the upcoming WPI Inflation numbers for November.

Last week, November’s retail inflation data was released, with the numbers showing a massive increase in the food prices, which boosted the CPI (Consumer Price Index) number towards 5.54%. The recent PI was significantly larger than the 4.62% CPI for October.

Likewise, the CPI for last month was a lot higher compared to the CPI for November last year, which only recorded a 2.33% retail inflation.

Experts believe that the current standing in inflation assumes significant in the latest monetary policy review of the Reserve Bank of India, which has maintained the major lending rates in terms of rising inflation levels.

Aside from the upcoming releases of the latest inflation rates, market players also focus on the review meeting minutes of RBI for the latest monetary policy.

However, according to Siddhartha Khemka, Retail Research Head at the Motilal Oswal Financial Services, despite the increase in valuations, the liquidity flows and the optimistic global cues will offer huge help in sustaining the market’s gains in the coming week.

Khemka further stated that the current momentum in the market has a high possibility of continuing until next week, given that the US-China trade agreement will offer more clarity to the market.

The liquidity flows have also helped boost the market, which is expected to continue doing so for a while, and the government has also offered strong support for the market with its couple of new reforms, said Khemka.

On the other hand, Sahil Kapoor, the Chief Market Strategist at the Edelweiss Professional Investor Research, said that with the weakening US dollar valuation, developments in the US-China trade negotiations, and the revival of the base metals signals a possible rally for stocks next week.

He further stated that the mid-cap index in the NSE is looking towards a breakout and an uptrend momentum in the coming week.