Sensex Rallies Over 400 Points As Inflation Eases Below RBI's Tolerance Level

Indian equity benchmarks rallied on Tuesday, snapping a two-day losing streak after data showed inflation cooled to an 11-month low and below the upper end of the Reserve Bank of India's tolerance level, driving bets for more support for economic growth from the central bank.

The BSE Sensex index rose 402.73 points to close at 62,533.30, and the broader NSE Nifty index climbed 110.85 points, or 0.6 per cent, to end at 18,608.

The winners from the Sensex pack included IndusInd Bank, Bajaj Finance, Infosys, Tata Consultancy Services, HCL Technologies, Mahindra & Mahindra, Tech Mahindra, and Bajaj Finserv.

However, among the notable laggards were Nestle India, Tata Steel, Maruti, and Titan.

Data released on Monday showed that the retail inflation dropped to an 11-month low of 5.88 per cent in November, falling for the first time since December 2021 below the upper end of the RBI's target range of 2 - 6 per cent.

That shored up views that the RBI would slow the pace of future rate hikes and comes ahead of key US inflation data later in the day and the Federal Reserve's final meeting for the year on Wednesday.

Global markets, though, wavered ahead of those key US releases.

In spite of expectations that the world's largest economy will record the lowest level of inflation this year, the US index futures and European shares held stable, calling for a less hawkish Fed.

“Today's US CPI data will give us an idea on how the market pricing for the Fed's terminal rate will clash with the dot plot projections that will come out tomorrow, and that will, in all cases, hammer any potentially optimistic market sentiment,” noted Ipek Ozkardeskaya, a Senior Analyst at Swissquote Bank, according to Bloomberg.

“Therefore, even if we see a great CPI print and a nice market rally today, it may not extend past the Fed decision on Wednesday.” 

This week, the Fed, European Central Bank and the Bank of England were expected to hike rates by 50 basis points (bps), rather than the aggressive 75 bps previously.

"Given the very close proximity (of US CPI data) to the Fed meeting, it clearly has the ability to change the tone of the message...but is highly unlikely to change the headline 50 bps hike," Deutsche Bank said in a research note.