What should be the focus at the moment? Inflation or Growth? With the current inflation numbers being printed,the concerns rise again on the stance of RBI and the direction ahead. What really impacts the inflation,to my mind are two constituents:
International Oil Prices
Cost of Grains
The Oil price as a factor is totally out of our control & as India consumes 5% of the Global Oil Production per day,any Dollar change in the price of Oil has a deep impact on the domestic pricing. Also with the weakening of INR to Dollar, we tend to import further more inflation.
For years and years we have been dependent on Monsoon for our Kharif and Rabi produce. Each year the Food Inflation that accounts around 35% weight in the CPI basket fluctuates our Inflationary expectations.
Further with a huge borrowing programme,we have been keeping the yields artificially low. Even though GSAPs have been announced, the fresh GSEC auction results have been in front of us.
So should we be worried for Inflation, Interest rates or Growth.
Targeting a higher Double Digit Nominal GDP Growth rate of around 15% with Inflation targeted around 6/7% will lead us to a Real GDP Growth rate of around 9% for a few ahead years.
Liquidity is not the issue today, the issue remains to part funds with credible borrowers and their ability to multiply and payback. Employment generation is the Key at the moment for a higher Consumption capacity and savings as well,as they are interrelated.
Gradually as the interest moves up,the small saving schemes will provide better returns and the money supply will get balanced between a suitable consumption & savings.
As a developing market,Growth is what will attract the FPI inflows and the Retail Equity Inflows into the markets,hence providing a superior alpha in that space as the Corporate Earnings improve.
The need is to inculcate the long term savings pattern which should be 20 years plus,while the short term interest rates need be low for the Consumption cycle to kick in across the spectrum.
Equity SIPs are always what we talk about,ever considered SIP in Debt Funds for a Long Term Savings as well as the reinvestment rates move up?
The Views are Personal.
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