Inflation falling, will the rally continue?

Last Friday saw a massive jump in US stock markets, highest one day rise in last two years!

This was mainly triggered by CPI (inflation) data which came out quite lower than expected. Global inflation had been the biggest risk for stocks and though our markets are at nearly same level as that of January 2022, but US markets had fallen by over a whopping 25% in this duration.

We are long term bullish on India, we consider it a good time to buy stocks but the global risks are very strong and can cause a recession which will impact India also. Investors need to be extremely cautious about stock selection and should be ready to exit if the situation worsens for India.

Will this rally continue?

We have explained in several of our previous newsletters that Indian economy is in a very strong position. If the global inflation issue was not there, then our stock market could have gone even higher. That inflation risk is now coming down and we expect stocks to move higher.

But we do not expect this to be a one sided rally, inflation can again start to rise, its root cause is still there, it has not been cured. For the time being, we are bullish.

Is inflation really coming down?

All global commodity prices have been declining since last several months, a clear indication that it is declining. Most of the commodity prices are now dependent on global markets as the world is getting more and more integrated by global trade of goods and services. So what happens globally to prices, it also happens in India.

Three key commodities are crude oil, copper, and food. The price charts of these will clearly show that inflation is on decline.

Crude oil prices


Steel prices (International)


Global Food Price Index


Should one stay invested?

As mentioned earlier, the risk is still there, the disease has not been cured. Global inflation is coming down because most of the major countries increased interest rate. Now as the inflation is cooling down, they will be forced to bring down the interest rates, because if the rates stay high, there will be risk of recession and political vote bank loss. So, if the rates are decreased, the inflation may again start rising – at some point of time in future.

Till that happens, stocks may continue to go up.

Stay connected with us and you will know the good time to exit.

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