Last week the stock indices hit new highs and the rupee strengthened against the dollar as foreign fund inflows poured in equities and bonds.

However, post-market hours news on Friday about IIP and inflation data could halt the surge in the share prices this week.

The slowdown in consumer goods manufacturing and the high base effect caused India's industrial production growth to plummet to an eight-month low in November. The index of industrial production grew only 2.4 percent in November.

The retail inflation based on the Consumer Price Index surged to 5.69 percent year-over-year in December from 5.55 in November. The seasonal increase in vegetable, fruit, and pulse prices, which the Reserve Bank of India had previously taken into consideration, caused retail inflation in December to hit a four-month high.

Domestic Markets Last Week

Indian stocks reached new highs on Friday and recorded weekly gains led by a surge in technology shares. Nifty IT index rose to over 5 percent, its highest rise in 21 months after IT companies TCS and Infosys posted better-than-expected quarterly results easing fears of slowing business.

Government bond yields eased by 5 basis points last week buoyed by news on index inclusion and strong upside support in US bond yields. Bloomberg Index Services proposed adding Indian bonds to its emerging market local currency index in September. On Friday, yields went up on weak demand at the weekly bond auction.

The rupee reported its strongest week in a month against the dollar and reached its highest level in four months on Friday as dollar inflows poured into the equities and debt market. Foreign banks sold dollars on behalf of their clients for most of the week. The rupee reached 82.87 intraday on Friday, its highest level since Sept. 22.

Global Markets Last Week:

US stocks posted their best weekly performance since mid-December. However, on Friday shares were little changed as mixed results of banks countered inflation data that was softer than expected, which raised hopes for an early interest rate cut from the US Federal Reserve. Price drops in food and diesel fuel led to an unexpected drop in U.S. producer prices in December, according to data released on Friday.

Treasury yields fell sharply as speculation about a possible interest rate cut by the Federal Reserve this year was fueled by unexpectedly low producer prices data for December. The US producer price index for final demand fell 0.1 percent last month. The 10-year benchmark fell to a one-week low during the trading session on Friday.

The US dollar weakened after the US producer prices fell for December, raising the likelihood of any early US rate cut. The producer price index for final demand declined 0.1 percent last month, indicating lower inflation in the future months. December jobs data showed a strong rise reported earlier this month.

Corporate Bonds

Secondary Market

Yields eased slightly for long-term corporate bonds tracking government bonds last week after demand from pension funds picked up in the secondary market. Mutual funds were active traders for shorter tenure bonds.

Outlook For This Week

Domestic stocks are likely to open weak after inflation rose to a four-month high of 5.69 percent for December and IIP data grew at an eight-month low of 2.4 percent for November. Traders will also keep a close watch on quarterly results to be announced this week from HDFC Bank, LTI Mindtree, Hindustan Unilever, etc. Government bond yields may open with an upward bias but are likely to remain range-bound for the week.

In Other news

• IIP growth at 8-month low in November, retail inflation rises in December
• Nine states record higher inflation than India's average, shows data
• Factory output powers down in Nov, food fuels inflation in Dec
• At $617 bn, India's foreign exchange reserves slip from near 22-month highs
• On a high note: Bank deposits double in a little over 7 years, shows data
• Domestic two-wheeler sales zoomed 9 percent in 2023 fueled by a rural demand uptick
• FM seeks more participation from French financial institutions at GIFT City
• Atal Setu: Mumbai gets India's longest sea bridge, operations begin
• Rs 7,000 crore deals: Tata Consumer acquires Capital Foods, Organic India
• RBI imposes Rs 2.49 crore penalty on 3 banks including Punjab & Sind
• Oil tankers divert from the Red Sea after strikes in Yemen