Intermediate

We are currently in a phase of heightened market volatility led by a confluence of factors. Some of the ongoing concerns leading to nervousness in the markets are inflation remaining higher for longer, higher crude & gas prices and an accelerated rate hike cycle by the Fed. It hasn’t helped matter that the valuations around the globe have been higher than long-term averages. However, volatility is nothing new to equity markets and nor is anxiety around a set of factors which threaten to pull the markets down.

I am not a cook, but watching people cook, especially in a contest, is surprisingly captivating. Have you ever wondered that in a multitude of these Masterchef type contests, there would be a set of amateur chefs who would be given the same type of "wonderful" ingredients, but each would make a significantly different dish out of them, which would then lead to either win or lose in their pursuit of being the best Masterchef.

The Reserve Bank of India's monetary policy committee today (April 08, 2022) voted unanimously to keep the repo rate and reverse repo rate unchanged at 4.00% & 3.35%, respectively. The policy stance remained accommodative, but the RBI added the guidance that it will focus on withdrawal of accommodation to keep inflation within target, which can be considered a signal of normalization. The monetary policy statement or the press release contained no mention of the calibrated or gradual withdrawal of accommodation which has punctuated the RBI policy since the ebbing of the pandemic.

The Monetary Policy Committee (MPC) conducted an off-cycle meeting between 2nd and 4th May 2022 to reassess the evolving inflation-growth dynamics post the April MPC meeting & took the following actions:

Mutual funds have been steadily emerging as preferred investment options for retail investors and have become one of the attractive avenues to invest money. Such preferences arise from the convenience of investing in mutual funds and a wide range of mutual fund schemes investors may choose from. While investing in mutual funds is the primary step towards wealth creation, reaping the benefits of wealth created over time is equally crucial. When the investor submits the request to withdraw money from their mutual fund investments, it is called a mutual fund redemption request.

Retirement planning is one of the ignored facets of financial planning since the millennial population does not believe in saving for the future but instead lives in the present. In contrast, it becomes crucial to have a healthy financial corpus to take care of the life post-retirement in the absence of any formal social security scheme in India. The post-retirement life is often considered the second innings when one can fulfil their pending aspirations.

It is often said that investing is an art. One often thinks that the job of prudent financial planning is over by making regular savings. However, it is easier said than done since it is not only about saving but also saving and investing money in the right pockets. Markets today provide a wide range of investment options to investors across different asset classes. Still, one tends to go overweight in a single asset class, thereby creating a skewed investment portfolio.

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) voted unanimously to hike the repo rate by 50 bps to 4.90%. Consequently, the standing deposit facility (SDF) rate stands adjusted to 4.65% from 4.15% and the marginal standing facility (MSF) rate to 5.15% from 4.65%. The MPC maintained its “withdrawal of accommodation” stance while dropping the phrase “staying accommodative”, signaling a shift towards “neutrality”. The Governor reiterated that further monetary measures will be needed suggesting further rate actions to move towards a positive real rate in near term.

In the current market construct, there are some questions often on top of mind for fixed income investors:

Since the last RBI policy meet, global growth-inflation dynamics have changed drastically with increased risks of a synchronized global slowdown due to tight financial conditions & weak consumer sentiment. The US economy registered two consecutive quarters of negative growth. Global commodity prices have fallen meaningfully with Bloomberg commodity & agriculture spot index dropping by 11.3% & 18%, respectively in INR terms since June 8th, the last RBI policy (Source: Bloomberg).