DBS: Wary Of Breakout Risks

DBS write “Indian markets continue to juggle global and domestic developments. Locally, the focus is on October’s inflation print, due early next week. In line with the trend of the last two months, we expect headline CPI to slip to around mid-4% vs 5% in Sep. At the same time, we are keeping an eye on early passthrough of higher onion prices (partly offset by declining tomatoes) and a persistent rise in pulses. These are however headline CPI related; core inflation is likely to stay benign, below 4.5%, as per our forecasts.”

• “The RBI has been cautious on the inflation outlook, expressing clear guidance that the committee sees 4% as the inflation target and will not be comforted by levels north of the target.”
• “Being mindful of the higher-for-longer narrative from the US Fed, the central bank’s interventionist bent has led the USDINR volatility to tumble in recent months.”
• “Market participants will be wary of breakout risks.”
• “On rates, tracking global yields, IN 10Y bond yield (generic) pulled back from highs this week, albeit lingering uncertainty over the timing of the RBI’s OMO marked a floor, limiting recent moves to 7.25-7.35%. Despite an absence of outright OMOs, official data showed that the central bank was active in bond sales in the secondary market till last week. Ears to the ground on whether the auction might be announced this week.”
• “State elections are underway in five states, with results due on 3-Dec. As we noted in the past, the outcome of the state polls has had modest bearing on the results of the general elections (next scheduled for Apr-May ‘24). Yet, market participants will focus on the Dec ‘23 results to get colour on the popularity of the incumbent as well as the new opposition coalition.”