As highlighted in June’21 and Feb’22 Mails subjected mail Updates and Current Investment Options &Imp updates on Budget I mentioned that interest rates may rise. Since last many months globally all central banks have been increasing interest rates.

Yesterday after a long denial of rising inflation Indian central bank in an emergency meeting raised the repo rate by 40 BPS. Even the US FED (US central Bank) raised rates and is going to tighten the liquidity in the coming months. In anticipation of that the US markets witnessed a good amount of correction, particularly the new age IPO’s companies without any profits, stocks which are priced obnoxiously corrected in the range of 40-90%. The same can be seen in other world markets. And coming to India, new listings like Paytm, Zomato etc have been corrected a lot. But still they are not cheap.

The impact of the repo rate will be seen in the form of higher interest rates on borrowing and deposits in the next couple of months. There will be further increase in interest rates going forward depending on incoming data. The probability of interest rates rising is higher even from current levels.(specially short term rates)

As against since last two years rising rates will help to earn higher returns in debt as the cost of funds increase for borrowers like govt, corporates etc. And with higher inflation indexation numbers will also move higher which helps to generate better post- tax returns.

For the last year or so, I proactively made efforts to trim exposure to small and mid cap funds, giving only conservative options for investments and other portfolio actions depending on your individual asset allocations. Even for long term money parked in safer options and using it to take benefit of volatility and corrections by doing STP, switches as and when there is opportunity.

I cautioned a lot about pump and dump stocks, do not chase momentum ignoring value. For more than 6 months markets have been punishing such stocks. It is not new. In every euphoric stage such events occur. It is our responsibility to avoid such stocks where there are governance issues.

Do not chase returns blindly at the cost of your capital,which is irreplaceable. Being a lifetime’s savings, respect it.

It is better to earn lower return on capital and be safe then blindly chasing for returns without comfort in valuations.

“There are old investors, and there are bold investors, but there are no old bold investors.”-Howard Marks

Do let me know in case of any further information.