Election Uncertainty and Volatile Investor Sentiments

CPI Inflation Falls; Food Inflation Rises

• CPI inflation fell to 4.83% in April 2023 YoY, however, food inflation remained high at 8.70%.
• Rising food prices can diminish household disposable income and reduce your savings.
• Diversifying your investments across different asset classes such as stocks, bonds, and real estate can mitigate the impact of inflation.
• Investments in equities and commodities (gold) often act as a hedge against inflation.

Borrowing Costs to Remain High

• The credit deposit ratio of banks reached a high of 79%, indicating that banks have disbursed 79% of their deposits as loans, surpassing the normal range  65% to 75%.
• To attract more deposits, banks might offer higher interest rates. Consequently, the borrowing rates may also remain high.
• You can increase your savings by opting for fixed deposits in banks. And if you are a borrower, consider paying down high-interest debts, such as personal loans.
• If you’re planning to take a new loan, opt for a floating interest rate or wait until the reduction in interest rates.

Unemployment Trends & Importance of Emergency Funds 

• The unemployment rate in India rose to 8.1% in April 2024 from 7.4% in March 2024, according to the CMIE survey.
• Given the uncertainty in the job market, having a robust emergency fund is crucial.
• You should have enough funds to cover at least 6 to 9 months of living expenses.
• Increasing your allocation towards bank FDs or other liquid instruments and avoiding unnecessary expenses is advisable.

Note: A person is categorised as unemployed “because of a lack of job and where such a person is actively looking for a job”.

Strategic Investing during Volatile Markets

• Since 1st April 2024, the NSE Nifty 50 index increased by 0.6% (as of 17 May 2024), while in FY2024 it registered a growth of 28.6%.
• Foreign investors withdrew ₹86.7 bn from Indian equities in April, while domestic investors invested ₹441.0 bn.
• Given the volatile market sentiments due to high global inflation and ongoing Lok Sabha elections, opting for SIPs and diversifying your investments across sectors is advisable.
• You should maintain a long-term investment horizon to avoid short-term market fluctuations.