Every year at the time of Dussehra in our home we do an evaluation of how the prices of the things grew from last year onwards. This would include essential grains and also things like the Interest rates, Equity market, Real estate and Gold. Markets are about the future and the future is always unknown and uncertain. Therefore we are looking at the key variables which perform in different set of scenarios. That said a black swan event like Covid19 can shake and shape the way the world works.
Let us start with Interest rates
Interest rates in India were close to 6.5-7% with most banks last year. However as Interest rates have been cut worldwide on account of the stimulus, rates had to be cut in India as well. Given the current backdrop of our economic situation and the fact that our borrowers are under duress, a rate cut in the range of 25 bps cannot be ruled out now as it would be difficult to execute later as inflation rises towards December as historically observed.
What is a solution for Srcitizens/people planning for retirement relying on interest rates to maintain their lifestyle?
There are options by way of Secured Debentures/Perpetual Bonds on the PSU Bank side which offer a return in the region of 8-9 percent pretax. This would be a comfortable cushion to lean on in today’s times.
Markets have been at similar levels since last year. This has primarily been a concern; however in current times on account of the liquidity conditions money has been allotted to asset classes and in markets as Business is not willing to utilize the credit. Part of it has also come to our markets.
One of the other causes has been the surge in domestic liquidity on account of moratorium which is getting eased now. However as incomes at level of individuals have come down chances are that the liquidity flow in the markets would continue for some time.
Key concerns going forward is the issue of this pandemic peaking around March 2021.However Industry Captains are optimistic that the worst is over which does not seem to be the case.
There is a pressure on prices as compared to last year. Residential may see an increase in demand towards the medium term if people work from home as larger houses are needed. It remains to be seen on commercial the reaction as Large IT Companies may be looking at not renewing the existing setup going forward. That is likely to cause grief to Owners of Commercial property and REITS. For those who are not aware REITS are unitized forms of Commercial properties available as an instrument. The coupon is likely to see some decline if not major decline going forward.
Gold is likely to be in a range going forward. Once in every decade we see a spike in Gold prices on account of extreme pressures in the world economy. It is not likely to see a major increase in prices going forward beyond the historical average return of 4% in the last Century.
Regardless of the trend the biggest problems in investing happen on account of behavior. May this Dussehra help you kill the Ravana within and bring prosperity to your lives.
Disclaimer: The views expressed in the article above are those of the authors’ and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.