Managing wealth in tough times

Inflation has been the second most commonly used term after ‘pandemic’ in the last one year. Following the pandemic-led economic stimuli, subsequent downturn and slow revival, we are once again back to discussing the descending pressure on growth. Governments across the world are scrambling to find ways of reigning in this multi-headed monster.

India however is no stranger to this tiger. Inflation has been a permanent fixture of all economic discussions and budgets and the central bank and government are well versed in managing growth in spite of inflationary pressures. What is not understood too well is how this affects the common man. In August 2022, the rate of inflation in the country was at 7% for Consumer Price Index (CPI) and 12.41% for Wholesale Price Index (WPI). The last three years have seen soaring inflation rates much above RBI’s upper limit of 6%. And this has been the case for the past many years. For example, a loaf of bread that costs Rs. 10 in 2000 is now Rs. 50. Salaries haven’t, however, gone up as rapidly. On the other hand, a fixed deposit, the go to safety net for most middle-class households, rarely gives returns of more than that 5%. Your money therefore isn’t growing as rapidly as the cost of household items.

The pandemic created significant disruptions in supply-chain, the repercussions of which are still prevalent in the country, fueling the flames of inflation. This disruption has subsequently led to a hike in prices of commodities and fuel which is reflected at all levels, including transportation and logistics costs. While consumers are often at the forefront bearing the brunt, small and medium businesses are no less; which has put India in a tight spot given that we are a price-sensitive nation.

The markets are now crashing and there is an overall dip in revenues. However, it is crucial to be vigilant and effectively manage assets to reduce the tides of inflation and an upcoming recession, and thereby an overall dip in valuation.

The best hedge against inflation remains equities.

Since the end of last year has been to book profits in the equity portfolios and park those funds in expectation of exactly these times. We expect the recessionary pressures in the economy, given the current global scenario and markets to be range bound with downward bias in the next two to three years. This is the time, keeping in mind risk appetite, age and time horizon that one must take exposure, over a period of time to good quality equity.

Some stocks in the market may suddenly witness tremendous growth within a short period of time. While it might be tempting to invest in such stocks and cash in on the market gains, these involve high-risk, and one untimely move can result in heavy losses. Disciplined investing in good companies will ensure healthy, long term returns.

Life is a balance between holding on and letting go.

Global investments may be an option.

Today, several financial service providers offer products and services that enable access to international stock markets. This is a good hedge against our devaluing currency over a long period of time as well as against possible country risk. Currently however, India is far better positioned than most economies and one must take these calls very carefully. There are interesting options like SLS investments (Senior living settlements) that provide 7-8% dollar returns with no downside. Expanding your assets portfolio through investments in global markets can help increase the valuation of your assets, based on the currency values. This will not only expand your investment horizons, but could help build a global network.



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Disclaimer

Views expressed above are the author’s own.



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