Stock market indices in India may open steady, anticipating the release of domestic inflation figures.
India's domestic inflation data for July 2025 has shown a significant decline, with inflation dropping to an eight-year low of 1.55%. This cooling, driven mainly by falling food prices and moderation in transport and housing costs, reinforces expectations for the Reserve Bank of India (RBI) to consider further interest rate cuts in the near term [1][2].
In contrast, the US inflation data for the same month indicated a rise of 2.8% year-over-year, with core inflation hitting a six-month high [3][4][5]. Despite this, markets responded positively, with hopes of a Federal Reserve rate cut in September buoyed by inflation remaining relatively contained and some easing of trade tariff impacts [3][4].
The implications for Indian equity markets and near-term interest rate expectations are as follows:
- Indian equity markets are likely to react positively to the subdued domestic inflation print, as lower inflation supports economic growth and increases the probability of RBI easing interest rates further, reducing borrowing costs [1][2]. This can improve corporate earnings outlooks and investor sentiment.
- The expectation of RBI rate cuts, stemming from inflation dipping below its tolerance band, may boost equity valuations by lowering discount rates and improving liquidity conditions [1][2].
- However, US inflation rising modestly with some core inflation firmness may temper too aggressive Fed easing expectations, which indirectly influences global liquidity and foreign capital flows into India, potentially constraining upward momentum in Indian equities to some extent [3][4].
- Overall, the combination of falling Indian inflation and moderately contained US inflation should support a stable to positive outlook for Indian equities in the near term and increase expectations for one or more RBI rate cuts this year, while keeping a watchful eye on global cues from the US rate policy [1][2][3][4][5].
Other market movements include the Nifty and Sensex expected to open flat on Tuesday, as markets eye the release of domestic inflation data [8][9]. Domestic institutional investors have been net buyers of Indian stocks for 26 consecutive sessions, and flows into equity mutual funds in July surged to a record high, lifting the DIIs' stake in Indian stocks to an all-time high [10][11].
In international news, Trump is due to meet Russian President Vladimir Putin in Alaska on Friday [6]. The US-China trade truce has been extended by another 90 days [7]. The MSCI Asia ex-Japan index is edging 0.15% higher [12].
Meanwhile, the Rupee has risen 8 paise to 87.50 against the US dollar in early trade [13]. Companies such as Ashoka Buildcon, Hindalco's unit Novelis, Astral, and Bata India have reported varying results in their latest financial quarters [14][15][16][17].
The retail inflation data in India is set to be released after market hours on Tuesday [9]. Share Market Live Updates for August 12, 2025, suggest that the market is keeping a close watch on these developments [9].
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