While Sep inflation was along expectations, it sets the stage for a sharper pullback in October’s print. Sep inflation eased to 1.5% yoy from 2.1%, along our forecast, slipping below the RBI target band for the second time in 2QFY, on a seasonal correction in perishable food costs. Food disinflation deepened -2.3% yoy, declining for a fourth consecutive month. Vegetables dropped 21% yoy, alongside pulses down 15%, while oils, milk and cereals rose at a slower pace. Global energy prices have also been subdued, offsetting the spillover risks from a weak rupee. By contrast, buoyant precious metals and an idiosyncratic rise in housing inflation pushed core (ex food, fuel) inflation to a two-year high at 4.5% vs 4.1% month before. The disinflationary impulse from indirect tax relaxation is likely to be more apparent in Oct’s print as changes took effect in late Sept, with further destocking to restrain Nov’s print as well. Impact of GST reduction, high base effects and further signs of deepening disinflation in food is likely to push October inflation to a record low of ~0.5% yoy in Oct, strengthening the case for a rate cut in December. Full-year inflation is tracking at close to 2.0-2.2% at this juncture, well below the central bank’s forecast at 2.6% (DBSf 2.5%). 
 

From the BOP perspective, net FDI run rate has improved materially in FY26, after a weak finish in FY25. Net FDI in the first four months of FY i.e. Apr-Jul25 jumped to $10.8bn, compared to $3.5bn same time year before. Add to this, gross FDI jumped to the strongest monthly figure in over five years (in Jul), taking the Apr-Jul25 flows to $37.7bn compared to $28bn in the same period year before. We also note than outbound FDI continues to maintain a healthy clip, underscoring the trend that domestic firms have actively diversified their presence, via financing offshore units, expanding business or M&A. The combination of a narrowing current account deficit and better capital flows is likely to keep the balance of payments in surplus this year. Separately, there was a revival in hope that India and the US is close to concluding a trade deal, with an Indian trade team set to visit the US this week. Reports suggest that India has offered a few concessions on farm products, besides increasing energy purchases from the US, working towards finalising the deal by mid-November. Rupee briefly appreciated on the newsbreak on Monday. Focus, meanwhile, will be on the upcoming state assembly election in Bihar (Nov 6 and Nov 11), where the ruling coalition NDA (which is also the ruling party at the centre) is vying to retain its grip in the electorally key state. Ahead of the elections, the state machinery leaned on cash transfers and freebies, including support for women and increase in pensions/ honorariums for government workers, amongst others.