Driven by deflation in key food categories, India’s CPI inflation plunges to multi-year lows, raising hopes of a dovish pivot by the RBI in upcoming policy meets.
Recent Development and Why It Matters
India’s Consumer Price Index (CPI)-based retail inflation dropped sharply to 2.1% in June 2025, marking its lowest level in over six years (77 months), as per data released on July 14. This is a significant fall from 2.8% in May, largely driven by sustained declines in food prices.
The dramatic cooling in inflation mirrors trends in the Wholesale Price Index (WPI), which entered deflationary territory at -0.13%, signaling broad-based price softness. Food inflation led the fall, entering deflation for the first time since 2019, with vegetables plunging 19% YoY and pulses down nearly 12%.
For traders, this development matters because a soft inflation print improves the probability of further rate cuts by the RBI, potentially stimulating consumption and equity market sentiment — especially in rate-sensitive sectors like banking, auto, and real estate.
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Market Reaction and Technical Outlook
On July 14, markets may open with a bullish bias across Nifty Bank, Nifty Realty, and Midcap indices, as the data fuels dovish expectations. The RBI repo rate, currently at 5.5%, has already been reduced by 100 bps in 2025. This new CPI print may pave the way for further easing in the September or December policy meetings, though the central bank may still adopt a cautious tone.
Bond markets may also react positively. 10-year G-sec yields, which have been trading in the 6.80–6.90% range, could move toward 6.75%, improving short-term sentiment for PSU banks and debt-heavy sectors.
According to Kotak Mahindra Bank Chief Economist Upasna Bhardwaj, “The softer-than-expected headline inflation comes on the back of moderating food prices, but core inflation has ticked up slightly.”
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Broader Sector and Index Impact
Rate-sensitive sectors stand to benefit:
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Nifty Realty: May see buying interest as lower rates improve affordability and financing costs.
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Nifty Bank: Expect momentum in PSU banks (SBI, PNB) and NBFCs (Bajaj Finance, LIC Housing).
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Auto Sector: Consumer-oriented players like Maruti, Hero MotoCorp, and Tata Motors could see accumulation.
FII flows, which turned mildly positive in early July, may accelerate if global inflation and interest rates also soften. Traders should also watch for any reaction in gold-related stocks, as gold prices rose due to inflation hedge demand.
Sentiment and Watchlist Ahead
While inflation data is dovish, traders should note the RBI may adopt a wait-and-watch approach in the next couple of policy meetings, especially with global uncertainties and sticky core components like healthcare and gold.
Stocks to Watch:
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SBI, Bank of Baroda, LIC Housing – Momentum builds on lower bond yields and repo rate expectations.
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DLF, Oberoi Realty, Godrej Properties – Likely tailwinds from falling mortgage rates.
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Titan, Kalyan Jewellers – Gold price moves may influence consumer behavior.
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