Skip to main content

Inflation and its effect on Stock Market

The inflation rate has started having an impact on the Sensex. The Sensex has started rocking because of the high inflation. With its widespread reach, inflation affects all aspects of the economy, and thereby the Sensex.


   Last week, the markets fell after a sharp rise in food prices heightened concerns that the central bank may tighten the monetary policy more than expected. The financial stocks were among the big losers as higher interest rates could douse the demand for loans and squeeze the margins of banks.


   The food price index rose 18.32 percent in the 12 months to December 25, the highest in more than a year. The fuel price index climbed 11.63 percent. In the prior week, annual food and fuel inflation stood at 14.44 percent and 11.63 percent respectively. The primary articles price index was up 20.20 percent in the latest week, compared with an annual rise of 17.24 percent a week earlier. The Wholesale Price Index, the most widely watched gauge of prices in India, rose 7.48 percent in November from a year earlier, compared with 8.58 percent in October.


   Though overall, inflation moderated to 7.75 percent in November from 8.58 percent in October, food inflation has increased rapidly in the first half of December. High onion prices coupled with that of milk were blamed for high food inflation.


   This may lead to at least a 50 basis point rate hike in January by the Reserve Bank of India (RBI). One has to be prepared now for a much larger rate hike series than what one was expecting say a month ago. The RBI is scheduled to review the policy on January 25.


   Quarterly corporate results due from next week are expected to show robust growth, and investors would be watching for management comments on outlook for direction. Inflation is one of the issues hurting the markets. Earnings should provide more cues on direction.


   Foreign funds have bought around USD 270 million of equity in the first two trading sessions this year, after pumping in a record USD 29.3 billion in 2010.


   According to the prime minister's economic advisory council chairman C Rangarajan, the inflation rate could be considered comfortable only when it comes down to four percent. He said the rate hike by the RBI will depend on the price behaviour during December and January. If the inflation rate comes down significantly, there may not be any need for action. On the other hand, if inflation remains sticky, then action will be required by the RBI.


   The RBI last year raised policy rates six times to rein in inflation. However, in its mid-quarterly review in December, the RBI refrained from raising rates since the system was facing a cash crunch. It, in fact, announced measures to inject Rs 48,000 crores into the system. The RBI, however, cautioned that its measures should not be interpreted as a reversal of the tight monetary stance since inflation still continues to be a major concern


   The rising oil price presents a new inflationary phenomenon and further complicates the task of policymakers. While raising rates can do little to cap cost-driven inflation, it can help cool overall demand and contain inflationary expectations fuelled by a broad rally in the commodity markets.


   Rising inflation leads to increase in interest costs, which affects the companies depending on debt finance as the cost of funds increases. This negatively affects the bottom lines of the companies. Moreover, increase in prices leads to decrease in demand, which again affects the corporate bottom lines. The purchasing power of people gets reduced. All these cumulatively have an adverse affect on the corporates, and thereby on the Sensex.

 

Popular posts from this blog

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

Merger of Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Merger of Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund Tata Mutual Fund has decided to merge Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund, with effect from January 16, 2015.   Investors of Tata Indo-Global Infrastructure Fund can redeem/ switch out units from December 13, 2014 to January 12, 2015 without paying any exit load. For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call Leave a missed Call on 94 8300 8300 Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com --------------------------------------------- Invest Mutual Funds Online Invest Any Mutual Fund Online Download Mutual Fund Application Forms from all AMCs Download Mutual Any Fund A...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now