Indian shares on track for muted open as inflation strengthens rate-hike concerns

Indian shares appeared set for a subdued opening on Tuesday, with investors closely watching Middle East tensions and soaring crude oil prices. The fear of a stronger-than-anticipated increase in retail inflation raised the prospect of additional interest rate hikes. The Nifty 50 futures were trading at 22,423.5 at 7:50 a.m. IST, suggesting a lackluster start for the Nifty 50 index, which had closed at 22,363.35 on the previous day.

In September, India's retail inflation surged to a higher-than-anticipated 5.54%, nearing the Reserve Bank of India's 6% upper tolerance band and reinforcing the argument for further rate hikes. The ongoing Iran war, now in its eighth month, and a weak monsoon contributed to price pressures. Hariselvan Radhakrishnan, founder and CEO of HST Wealth, noted that persistent high food and energy prices could strengthen the case for further monetary tightening, keeping borrowing costs elevated for an extended period.

The Iran war continued to keep Brent crude futures elevated around $105 per barrel. Traders assessed potential supply risks from attacks on Saudi Arabia while considering the possibility of additional diesel supplies from Russia. Asian stocks experienced a decline of more than 2% in early trading on Tuesday, with South Korea's KOSPI falling 6% and Japan's Nikkei dropping 2.6%.

Simultaneously, the Reserve Bank of India tightened rules on rupee non-deliverable derivative contracts, raising the cash reserve requirement by 20% for banks' rupee currency hedges. This move was one of several measures announced by the central bank since Saturday aimed at supporting the weakening rupee, which had been pressured by high oil prices and capital outflows.

Foreign investors sold Indian shares worth 17.08 billion rupees ($178.34 million) on Monday, marking their twelfth consecutive day of selling. In October alone, they had offloaded $4.9 billion worth of shares, the largest monthly selloff since June.