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How Cooling Inflation Numbers Are Failing to Support Market Sentiment

Overview

The latest inflation numbers suggest a cooling trend, with India’s February CPI dropping to a 7-month low of 3.61% and US inflation easing to 2.8%, as reported in Motilal Oswal’s MOSt Market Roundup (March 13, 2025). Typically, such figures would be positive for equity markets, as they reduce pressure on interest rates. However, the market remained under pressure due to concerns over a potential global trade war and weak global cues.

Key Factors Affecting Market Sentiment

Inflation Cooling but Market Still Uncertain

The decline in inflation indicates easing price pressures, which is beneficial for interest rate-sensitive sectors like banking, real estate, and autos.

However, commodity-linked sectors like metals and oil & gas could face margin pressures as raw material costs adjust to lower demand.

Trade War Concerns Weighing on Sentiment

Despite lower inflation, global trade policies remain a major overhang.

Motilal Oswal’s analysts highlight that ongoing tariff disputes between major economies could lead to weaker global demand, affecting exports and manufacturing.

What’s Next for the Markets?

The report suggests that while lower inflation should ideally support equity markets, investors remain cautious due to geopolitical uncertainties.

The Nifty index must sustain above 22,330 to move toward 22,650, while key support levels remain at 22,222.

Investors are advised to focus on defensive sectors like FMCG and utilities, which tend to perform well in uncertain environments.

Conclusion

The inflation data may not be enough to push markets higher in the short term, given ongoing global uncertainties. Motilal Oswal’s research suggests that investors should remain selective with stock picks, focusing on sectors that can benefit from lower inflation and resilient domestic demand.

(Source: MOSt Market Roundup, March 13, 2025, Motilal Oswal)

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