Indian markets should continue the upward momentum through positive developments including weak dollar, decent beginning of earnings season (Infosys results in line), easing of geo-political tensions, budgetary expectations of stimulus, stronger than expected IIP figures and continued global equity risk-on.
CPI inflation though surprised with a higher than expected spike 7.35%, well above 6% RBI target. Although the CPI inflation figures were not encouraging (primarily on account of higher food inflation), the fine print makes for a different reading. The inflationary spike was due to damaged summer crop due to uneven monsoon rains. However, going forward, winter crop is on schedule and that should keep food inflation under check in the near future.
IIP figures were encouraging, expanding by 1.8% for Nov 2019. 13 out of the 23 industry groups (as per the 2-digit level of National Industrial Classification-2008) in the manufacturing sector have shown positive growth during November 2019. Although a favourable base effect led to the IIP posting a turnaround to mild growth in November 2019, it still provided early evidence of green shooting of recovery in the Indian economy.
On the geo-political front, despite the rise in geo-political tensions last week triggered by the US-Iran faceoff, Bulls still retained the upper hand in Nifty Most global markets recovered quickly (US markets regaining all time highs again) after US President Donald Trump’s comments on the Iran conflict eased investor worries about further escalation of geopolitical risks in the Middle East. Iran's admission on hand in the Ukrainian plane crash in Iran would weaken their support from global allies, reduce sympathy and further dampen the probability of further escalation in the near term.