US March inflation surpasses estimates; Will Indian equities open in the red tomorrow?

Indian equities have been marching higher and higher amid strong investor faith in the Indian economy. In the previous session, Nifty ended at a new closing high of 22,753.8, up 0.49 per cent, while Sensex also marked its new closing high of 75,038.15, up 0.47 per cent.

Nonetheless, as domestic equities mirror the performance of the US markets, the recent hot March inflation print released in the US may exert some reaction on Indian equities in Friday’s trade. On Wednesday, the US March inflation print came in at 3.5 per cent on an annual basis as against the expectation of 3.4 per cent. 

"March inflation print coming at 3.5 % on an annual basis against the expectation of 3.4 %  will certainly constrain the ability of the Fed to cut rates. This acceleration in price rise from 3.1% in January and 3.2% in February to 3.4% in March has dashed hopes of a rate cut in June. This year began with market expectations of six rate cuts. Now the expectation has come down to a maximum of three, perhaps two. Even now a total of 50bp rate cut is possible this year and these will be backloaded,” said Vijaykumar  Chief Investment Strategist, Geojit Financial Services.

So, as with the hotter-than-expected inflation in the US, the rate cut hopes by the US Federal Reserve anticipated for June are dashed. Indian equities are likely to see a react negatively amid all the positives. Nevertheless, trades will still focus on the producer prices in the US data due to be released today for a clearer picture.

Chokkalingam G, Founder, Equinomics Research said marginal correction is possible as our markets are highly correlated with US markets. Further, the expert said that in domestic markets too inflation may edge up as oil price has shot up over 20% from the 4-month low.

Also, the US debt may remain attractive due to the delay in rate cut there. So dollar inflow into Indian bonds may not be robust which in turn could keep the rupee exchange rate quite weak. All these would mean some correction in our markets in the short term, he added.