On the back of sustained foreign portfolio investors buying, the Indian equities are likely to maintain bullish momentum on Tuesday as well.

The SGX Nifty at 18,050 (7.50 a.m.) indicates the domestic markets are likely to open 0.50 per cent higher. Most equities across Asia Pacific region are up between 0.2 per cent and 0.6 per cent in early deals today.

Analysts’ expectation of profit booking at higher levels did not materialise due to positive global cues and softening of crude oil prices.

Market experts believe inflation has peaked despite domestic inflation at 7 per cent amid dipping of production.

‘Inflation rate peaked’

Even as India’s inflation has peaked, it still warrants caution, with core inflation appearing sticky, said domestic brokerage Emaky Global Financial Services . "With mandi prices hinting at further uptick, we are tracking next month’s inflation at 7.14 per cent (implying 16bps lower than 2Q estimates of the RBI). While the RBI is still far from its supposed neutral rate, we believe we are near the peak of RBI’s hawkishness, led by falling risk premia of the entire commodity price complex," it added.

However, the global situation is still fluid and macro assessments might still require frequent adjustments ahead from a policy perspective, Emkay Global further said.

IIP - expected fallout: ICRA

The IIP growth plunged to a four month low of 2.4 per cent in July 2022, which according to ICRA, trailing its expectation of 4 per cent, " an unfortunate but expected fallout of the base normalisation, heavy rainfall in some areas, and the shift in discretionary consumption to contact-intensive services".

Available data points to a mixed trend in August 2022, with several high frequency indicators such as PV and and two-wheeler output, vehicle registration, GST e-way bill generation, steel consumption etc. displaying an encouraging sequential uptick in growth, whereas that of coal output, rail freight and ports cargo traffic etc. moderated on the back of factors such as continued base normalisation, and some flagging in external demand. On balance, we expect the IIP to report 4-6 per cent YoY growth in August 2022, it added.

Overall, the combination of slightly higher inflation and marginally slower growth is not desired, said Nikhil Gupta, Chief Economist, MOFSL group. "However, it is unlikely to concern the policymakers and/or markets at this stage. We continue to believe another 50-60bps hike in CY22 (with 25-35bps hike in Sep'22), taking the repo rate to 6 per cent by Dec'22," Gupta said.

A word of caution

As the BSE Sensex breached 60,000-mark and Nifty on the verge of crossing 18,000, market analysts advise investors to remain more vigil.

Market participants should be wary of the rising inflation and resulting removal of liquidity from the system, ICICI Direct said.

During CY21 there has been some central banks namely Russia, Korea, Ukraine who have raised rates. Rising inflation risk and hence withdrawal of ultra-easy monetary policy by global central banks (mainly Federal Reserve) may trigger a sharp rise in bond yields which can cause risk assets to correct sharply, it said. "Hence one can remain invested with a vigilant eye on the move in yields world over which can result in sharp 10-15 per cent correction from the current levels," Pankaj Pandey, Head – Research, ICICIdirect, warned.