Inflation and IIP data partnering together to cheer markets higher

BSE Sensex is up by over 400 points on Wednesday afternoon at the time of filing this report, backed by key macroeconomic data on inflation and industrial output. The positive data is flowing from all the directions for Indian economy and markets. IMF declared India as fastest growing economy and pegged country’s growth at 7.5 percent while lowering the global economy growth forecasts to 3.2 percent for 2016.

In what has bought cheers to market participants the retail inflation has declined to a six months low in the month of March. The retail inflation as measured by CPI has risen only by 4.83 percent in March. The same index showed price rise at 5.26 for the month of February. Inflation figures for March pegged at 4.83 percent are welcomed as it is below RBI’s inflation target of 5 percent for FY17. This lower inflation figures may trigger further rate cut by RBI and hence markets are reacting positively to the inflation numbers.

Also aiding the positive inflation data is the IIP data. IIP rose 2 percent in February from a year ago. Previous month to Febraury the IIP data reflected 1.5 percent of contraction.  IIP numbers raised due to good performance from electricity generation growing by 9.6 percent and the mining output which grew by 5 percent. Manufacturing grew only by about 0.7 percent which is actually worrying as it contributes almost 75 percent to the index i.e IIP. IIP data will have to show a positive momentum for at least 3 to 4 months put together with growth in manufacturing to claim a turnaround.

For the moment, good monsoon expectations, IMF report’s details pegging  GDP growth for India at 7.5 percent – highest globally , Lower Inflation date and positive IIP data seem to be cheering Indian markets.