Is the worst of inflation behind? What it means for the Indian stock market? Experts decode

Amid global economic uncertainty, there are emerging bright spots. Inflation has eased significantly in both the US and India, fueling hopes of interest rate cuts by the US Federal Reserve and the Reserve Bank of India, which could boost demand, improve liquidity, and support broader economic growth.

India’s retail inflation eased in April to its slowest pace in over six years, thanks to lower food prices. According to data from the Ministry of Statistics and Programme Implementation, the Consumer Price Index (CPI) rose 3.16 per cent year-on-year in April, down from 3.34 per cent in March, 3.61 per cent in February, and 4.83 per cent in the same month last year.

On the other hand, US consumer prices saw the smallest annual increase in four years. The US Consumer Price Index increased 0.2 per cent in April after dropping 0.1 per cent in March. Year-on-year, the CPI climbed 2.3 per cent, marking the smallest gain since February 2021. In March US CPI rose 2.4 per cent year-on-year.

Is the worst of inflation behind?

While recent data and macroeconomic indicators suggest that the worst of inflation may be behind us, risks stemming from the trade war continue to persist.

"After aggressive US tariff policy, and its recent discussions on reduction, the tariffs are unlikely to return to pre-announcement levels, and hence, the medium-term inflation risk is alive in the US," said Trivesh D, COO of Tradejini.

The US has announced trade deals with the UK and China, while India, too, is expected to seal a deal in the coming few days. US President Donald Trump has said that India is offering his country a trade deal with zero tariffs.

Geopolitical risks have subsided significantly in the last few days, and experts hint that the worst of inflation could be over.

"It’s still early to call it a complete reversal, but the worst of inflation may be behind us if global macro trends continue to support easing," said Abhishek Jain, Head of Research, Arihant Capital Markets.

Jain warns that a mild uptick in US inflation could have a ripple effect on some Indian companies, particularly those with significant exposure to the US market.

Devarsh Vakil, the head of Prime Research at HDFC Securities, underscored that the recent US-China tariff truce, involving a temporary reduction in tariffs, suggests lower inflation and a decrease in uncertainty in global trade.

"While the reduced tariffs are still significantly higher than pre-Trump levels, they represent a step back from the escalated full-blown trade war, potentially easing the economic impact and allowing businesses to resume some trade activity," said Vakil.

Vakil highlighted that declining crude oil prices have eased inflationary pressures across supply chains, and due to the combined effects of enhanced productivity gains and falling logistics costs, will lead to moderating consumer prices. This will set a compelling foundation for central banks to implement interest rate reductions.

Inflation eases: What does it mean for the Indian stock market?

The broader trend does not indicate a sharp spike in inflation in India and the US.

Jain of Arihant Capital Markets underscored that with the US moving closer to resolving tariff-related issues through recent and upcoming trade agreements, inflationary pressures may remain contained.

"For Indian markets, this could mean a more stable outlook, and as inflation concerns fade, investor sentiment should improve," said Jain.

Vakil of HDFC Securities pointed out that the punishing era of elevated interest rates is behind us, and financial markets now stand at the threshold of a more accommodative monetary landscape.

"Central banks are poised to orchestrate a gradual but deliberate pivot toward policy normalisation," said Vakil.

Trivesh of Tradejini highlighted that India's inflation trends show that demand-side pressures are contained. With this, the RBI now has more flexibility, and while a rate cut isn’t imminent, the bias clearly shifts towards supporting growth.

For equity markets, Trivesh believes India’s disinflation provides comfort and reduces macro uncertainty, offering greater clarity for investors.

"India enhances interest rate visibility, which generally aids valuations. In the future, interest rate-sensitive sectors such as banking, real estate, and consumer durables may witness new investor interest," said Trivesh.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.