Sensex, Nifty open at record highs on positive inflation data

The consumer price-based inflation (CPI) in India eased to a one-year low of 4.75 per cent in May from 4.83 per cent in April. In the US, the consumer price index slowed to 3.3 per cent in May, as against an expectation of 3.4 per cent.

The US Federal Reserve, in its policy announced on Thursday, left the interest rate unchanged at 5.25-5.5 per cent and indicated the start of rate cuts as late as December 2024. The Fed in the policy said that inflation has eased over the past year but remains elevated.

“There is good news on the inflation front, both in the US and in India. In US May CPI inflation has declined slightly less-than-expected to 3.3 per cent with month-on-month (MoM) inflation remaining flat. However, the economy continues to remain strong and there are no clear signs of labour market loosening. Therefore, the US Fed Chief Jerome Powell has kept rates unchanged and has hinted at only one rate cut in 2024 and possibly four rate cuts in 2025,” V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

The decline in May CPI in India to 4.75 per cent and core inflation at 3.1 per cent paves the way for a rate cut by the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) in October this year, he said.

“The takeaway from the inflation numbers is that the disinflation process is well on track. From the market perspective, this is positive news, particularly for banking stocks,” Vijayakumar added.

Last week, the RBI’s six-member MPC left the repo rate – the key policy rate – unchanged at 6.5 per cent on concerns over the rise in food inflation.

“With the Fed on hold as expected, markets’ attention was on signals from the updated FOMC projections and (Fed) Chair (Jerome) Powell’s presser. The updated dots were a bit more hawkish than expected, with the median showing only one cut this year (down from three in March). That said, a plurality of participants still expect two cuts,” said Madhavi Arora, Lead – Economist, Emkay Global Financial Services.

On Thursday, Nifty Bank gained 0.6 per cent to open at 50,179.

Among the NSE companies, the firms that gained the most included HDFC Life Insurance (2.65 per cent), Divi’s Laboratories (2.5 per cent), LTIMindtree (2.09 per cent) Shriram Finance (1.54 per cent) and Wipro (1.25 per cent).