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Tuesday, 29 November 2011

Indian Market at present condition

The unfolding Euro Zone crisis, slow down in US and persistent inflation,repeated monetary tightening could be the reasons for India's growth slowing , but economic fundamentals are strong. India's overall economic growth slowed to 7.7% in April-June quarter against 8.8% in the same quarter last year. The India Inc. has criticized the rate hike saying it is unlikely to tame rising inflation and could instead lead to further slowdown investments and industrial growth. The RBI , which has raised key short rates as many as 13 times in the past two years to tame inflation.
What is Inflation?
Inflation is a rise in the general levels of prices of goods and services in an economy over a period of time.
Causes of Inflation
It is very difficult to say that the cause of inflation but some causes are accepted by many Economists.
1.Demand pull inflation: If demand is growing faster than supply, prices will increase. This usually occur in growing economies.
2.Cost push inflation: When companies costs go up, they need to increase prices to maintain their profit margins.
3.Historically ,infusions of Gold and Silver into an economy also lead to inflation.
4.Increase in prices of imported raw material will cause inflation.
Inflation effects:
Negative Affects:
 1.Decrease in the real value of money and other monetary items over time.
 2.Uncertainty over future inflation may discourage investment and savings
 3. High inflation may lead to shortage of goods 
 4. Domestic products become less competitive.
 5. Decline in purchasing power of money and standard of living.
 6. Inflation increases transactions and information costs, which directly inhibits economic development.
Positive Affects:
1. Central banks can adjust nominal interest rates and encouraging investments.
2. Debtors gain when the interest rate raised to tame inflation
How the Inflation will affect the investments?
Inflation causes many distortions in the economy. It hurts people who are retired and living on a fixed income. In the long run a company's revenue and earnings should increase at the same pace as inflation, but inflation can discourage investors by reducing their confidence in investments. The main problem with stocks and inflation is that a company's returns can be overstated. Int he long term stocks are good protection against inflation. The impact of inflation on your portfolio depends on the type of securities you hold.
Where to invest in the times of inflation?
1. Commodities: Investing in commodities like gold and silver therefore helps in diversifying the risk element in your portfolio.There is no surety that they do well. Investing in a commodities takes care of the risk arising due to erosion in value of the currency.
2. Stocks: Stocks which are beaten and have returned in excess of 15% p.a are best option for investment.
Two sectors are relatively immune to inflation are Pharmaceuticals and software.
3. Inflation Index bonds: Thee are securities that offer investors the guarantee that returns will not be eaten up by inflation. Treasury inflation protected securities(TIPS)
4. Short term deposits and funds: These instruments will give you the required liquidity you need while ensuring that you do not lose out in case interest rates were to rise.
5. Property: Property is again a preferred avenue of investments An alternative can be real estate mutual funds. Which are very popular in international markets .Apparently, SEBI is considering allowing such funds in India.
How the FDI in retail to cut inflation and increase productivity?
Foreign Direct Investments in retail will safe guards small shop keepers and it would bring down costs on transportation,cold storage etc. In India farmers are struggling with the destruction's of natural calamities and the lack of technology is also one of the main reason to cause food inflation. Indian govt is trying to educate farmers but could not do it properly. If FDI's will come in retails there is a chance to bring new technology and to increase Agriculture production and bridge demand and supply gap.
                         There is an expectation that the Inflation rate will fall sharply over the next few months and the country's economy should hold up despite the global economic slowdown.


ba183aae-18e9-11e1-900f-000f20980440 said...

excellent.......good info
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worldknowledge said...

thank you very much bull ji

Raj Arun said...

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worldknowledge said...

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వెంకట్. బి said...

good, good, superb Anil, good info.
good write up. keep it up

worldknowledge said...

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Pramod said...

Very well researched, balanced info. Thumbs up to your salient efforts.

worldknowledge said...

thank you very much pramod ji

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