I think the inflation risk is now obvious to most of us, even if we don’t read the papers everyday. Even if the government claims the inflation is 4% or so, buying a kg of potato or sugar gives a different view of reality. So what do we do in response or if we need to do anything at all.

As far as equities are concerned, I rarely do any top down analysis and so I frankly don’t have any specific plans for my current holdings based on the inflation risk. No logic of inflation resulting in an increase in interest rates, in turn driving down demand for cars and hence the sales of an auto company.

I personally plan to avoid investing in long term deposits or long dated debt funds. If the inflation risk persists and the RBI decides to raise the rates (I have no idea if it will or not), then buying long duration debt fund or a long term deposit (more than 1 yr) would lock you into lower interest rates.

I plan to put my surplus cash in short duration floating rate mutual funds such HDFC floater and others. I don’t have preference for any specific ones, as most are identical and there is not much difference between them. If the rates do rise, then these funds should cover the inflation risk on the cash.

3 Comments

  1. anurag says:

    Dear Sir,

    The Inflation is turning be be Hyper inflation particularly in food items.

    Now with yesterday Fed’s decision the Dollay will surely strengthen,so the advt of cheaper dollar is also not there,so that we can import the food articles to control the prices.

    So now RBI do not have any option except tightening monetary policy or may be go in for a int hike.

    Iam not attempting to time the mktg,but then also a possiblity of a major correction(Downward)cannot be ruled out once the disinvestment process is over.

    Regards
    Anurag Awasthi

  2. admin says:

    Hi anurag
    yes, its quite possible that the RBI will hike the rates. i am not sure what kind of downward correction we would see and if we should concern ourselves with it too. Unless you are holding for the short term, it does not matter
    rgds
    rohit

  3. anurag says:

    Dear Sir,

    This post is in reply to your concerns which you raised regarding my comments on ‘Test of Patience’and also for previous post.

    I do accept and apologies that there was no corelation between the various points I mentined in my posts,but
    most of the time I find stock markets and stock prices are
    sentimental driven for ex:

    1)Why does one buy a share of SBI??

    For the dividend one receives! NO

    For the voting rights it entitles! NO,……..because we all know that SBI cannot be taken over.

    2)Now the buying the stocks are also very confusing for Investors

    When markets are going up the experts say ‘Naver chase a rising stock’

    When markets are going down experts say ‘Never catch a falling knife’

    So how do we buy,We just look into the past performance and make some assumptions on the forwrd earnings and We buy a stock.

    3)There are many Investors like me who invest in index stocks(Large Caps)so it is of primary importance to do some
    analysis of index levels(My portfolio is 70% Index stocks and 30% is mid and small cap)

    4)If you look at fundamental level there was not much change in feb-mar 09,and mar-may 09 conditions,But Markts
    had risn like a pheonix in the later period?

    Because Traders and punters got into this habbit of shorting the mktg at every rise,then they were trapped,the more they shorted the more mktg have risen in that period.

    We had touched 4650 in June 09 and now in dec we are at below 5000 levls?

    Because most of the shorters were wiped that post election Gap UP (Upper circuit)opening,So in short we are witnessing a trpical Bear Markets rally,which keeps rising till the people are short on mktg,and it starts to lose it steam when shorters are not shorting the mktg.

    regards
    Anurag Awasthi

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