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INDIAN ECONOMY
We are in a Macro World. US$ 25 bn has been pumped into economies across the world by Central Banks and this has pushed up all asset classes. The Federal Reserve has hinted at fiscal tightening in 2023 with inflation picking up - and once this happens there will be an inevitable correction. However, after that happens India is well poised for a resumption of the business cycle.
In 2019, i.e pre-Covid era; our Indian economy was on the recovery path:
- The anchor of our Indian economy i.e. the Banking System, underwent considerable stress, and most NPAs dealt with this situation.
- Interest rates had declined 1.5 bps.
- Inflation was moderate.
- Rural economy was strong.
- Government's focus was returning to the economy viz. reduced Corporate tax etc.
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However, Covid put some brakes on this revival trend.
After falling 23.9% in the June 2020 quarter, and in spite of the 2nd wave, the Indian economy is not in dismal shape.
- The Banking system has managed the crisis well and is flush with liquidity to recommence growth.
- Interest rates fell another 2.5 bps, although the falling interest rate cycle maybe over.
- Inflation is rising - but we have yet to see if this trend is temporary or permanent.
- Rural India was hit badly by the 2nd wave. However the Monsoon is likely to be good for the 3rd year in a row and Food prices are up.
- Government is focused fully on growth.
However, the flipside is:
- Unemployment is rising again.
- Covid Pandemic has set back the growth of our sizeable middle class.
- Some MSMEs are in a precarious position.
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DEBIT
We are likely to be at the bottom of the interest rate cycle. Interest rates are low resulting in low yields. Also, the RBI is not allowing the 10 year GSec rise to promote growth. Furthermore, it is only a matter of time before Inflation hits and the RBI raises interest rates, resulting in low returns.
Hence for debt allocation you can look at investing in Dynamic Bond funds (which manage the interest rate cycle) or alternatively a floating rate fund (where the yield will go up as the interest rates rise).
Another alternative for debt allocation is investing in Conservative Hybrid funds which restrict equity exposure to 25%. There are funds with 10+ years history and have never witnessed a negative 3 year rolling return. They give an average return of 8-9%.
Debt allocation can also be met through Peer to Peer lending (8-9.5% taxable returns) and Leasing lending options (11-12% post tax returns) - do contact us if you wish to know more.
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GOLD
Gold moved down sharply in July. This was after the US Federal Reserve moved the timeline of the first post-pandemic interest rate hike to 2023. Instead of keeping the interest rates near-zero through 2024, Fed now sees at least 2 interest rate hikes by the end of 2023.
The Fed's hawkish statements pushed the US Dollar to a 2 month high. Since gold is priced in dollars, they move inversely to the US greenback.
However the longer term Inflation risk is still in place, and Gold continues to be a hedge against inflation.
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Celebrate Your Financial Freedom
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AKURDI |
WAKAD |
WANOWRIE |
MAGARPATTA |
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