Inflation and rising interest rates: the blow is felt in all asset classes | Ahmedabad News

Calendar year 2022 has started with extreme volatility and uncertainty across all asset classes due to growing concerns about inflation, the negative fallout from the Russian-Ukrainian war on the global economy and rate hikes of interest that followed.

As crude prices hit an all-time high of $125, metals and gas prices reach all-time highs, and retail inflation rises, supported by supply chain bottlenecks and With headline inflation hitting decade highs in many developed countries, central banks, including the Reserve Bank, were forced to tighten monetary policies that eroded additional liquidity from the market, analysts said.
As a result, all asset classes experienced a massive erosion of wealth except for gold and bank deposits, which generated stable returns.
FII pull back, indices plunge
The Russian-Ukrainian war situation, coupled with global inflation concerns, kept Indian equity markets volatile and investors on edge. Analysts suggest that Foreign Institutional Investors (FIIs) pulled back close to Rs 2 lakh crore. However, domestic individuals as well as institutional investors kept their faith intact.
“Domestic funds are continuously injecting funds into the Indian stock market. This has allowed Indian benchmarks to perform comparatively better so far. Bond markets, on the other hand, have seen the yield on India’s 10-year G-Sec cross the 7.25% level now. The divergence in the performance of the various stock indices remained huge. While BSE Power shares generated positive returns of 20% in 2022; BSE IPO and BSE IT are down 20%. Such a divergence of over 40% in two sectors that in just six months has not been heard for many years,” Gunjan said.
Choksi, director of InvestAlin.
“It shows that Indian investors and fund managers have been extremely cautious in picking the right stocks and selling those where they didn’t see much near-term potential,” one analyst said.
Gold offers stable returns
Thanks to the Russian-Ukrainian war situation, gold prices experienced slight volatility towards the end of February and beginning of March, when prices reached Rs 55,000 per 10 grams. However, prices for the yellow metal failed to break through the all-time high of 58,000 rupees reported shortly after the Covid-19 lockdown.
Over a five-month period, gold had the highest returns of 5.72%. Although not the safe haven’s best return, but at a time when volatility remained high in equity markets, investors continued to invest in gold.
“Many people sold household gold to meet emergency expenses for medical and household needs shortly after the Covid-19 lockdown in 2020. Despite relatively weaker returns, investor confidence investors in gold as a safe-haven asset class remained intact.Despite a momentary spike in gold prices, investors did not see gains and instead held their investments.The recent sell off season celebrations on Akshaya Tritiya is also a reflection of this,” said Haresh Acharya, Director of the India Bullion and Jewelers’ Association (IBJA).
Bank deposit rates on the rise
An average rise in interest rates for a month and a half after the hike in repo rates announced by the Reserve Bank of India, several banks began to raise rates on term deposits (FD). The private sector lender, ICICI Bank, raised interest rates on FDs of less than Rs 2 crore by 10 to 20 basis points on May 16. 18 this year. The SBI, Federal Bank and Punjab National Bank also made similar announcements on rate hikes on FDs after the central bank’s decision.
“Banks have always promised assured returns to their customers and therefore, at a time of high market volatility, people often put their excess funds and even their earnings booked as profits in bank FDs. This supported bank deposits over a period,” a senior banking official said on condition of anonymity.
MF inflows continue, SIPs increase
Mutual fund (MF) investors in Gujarat have also continued to invest in various asset classes of MF throughout this year. Total MF assets under management in Gujarat touched Rs 2.68 lakh crore in April, up 3.57%. The AUM of equity mutual funds, which accounts for 53% of the overall AUM in Gujarat, increased by almost 7%, even after an average drop of 5% to 6% in the stock markets.
“This can translate into a net rise of more than 10% in equity funds by Gujarat investors – providing further reassurance that investors here have their faith in Indian stock markets intact. . These investments have usually come through Systematic Investment Plans (SIP) or Systematic Transfer Plan (STP) into shares in a staggered manner, which seems like the right choice in these volatile times,” said Mumukshu Desai, Director of Artham Finometry, a financial advisory firm.
Overall, the number of SIPs in equity mutual funds is reaching all-time highs every month. And now, many investors are turning to the Systematic Transfer Plan (STP) to invest in equity mutual funds or using balanced funds through Systematic Withdrawal Plans (SWPs) to generate regular tax-efficient income from of their investments with much lower volatility.
Investors return to real estate
Calendar year 2022 has so far remained positive for real estate investors. Overall, residential property prices increased by at least 5% in different parts of Gujarat including Ahmedabad, while office and commercial property segments remained stable.
“We are also seeing a return of investors to the market as they feel a cycle has begun in this sector. The cost of construction has increased, due to which the real estate costs are rising and on the other hand, high inflation has led to interest rate hikes. If the interest rate increases by 1%, this can reduce affordability by 7.5%. However, revenue growth in various industries is around 9-11% and therefore we believe that affordability will not be affected in the near future. The tracing segment has also seen an appreciation of up to 10% in 2022 so far,” said Vivek Rathi, Director (Research) at Knight Frank India.


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