What follows an exceptional year for investing is never easy to predict. Especially when the macros that lent support to a liquidity-driven bull run, begin to turn.

Most market watchers turn circumspect and edgy while making predictions. This is hardly surprising. Markets discount changing economic fundamentals, and when the fundamentals turn, prediction becomes a risky business. We are at the cusp of such a turn in fundamentals.

Global liquidity, which was a significant driver of markets, is set to drop and interest rates, globally, are set to rise. How rising global rates will impact EM’s (emerging markets) is not exactly unknown.

We know that eventually when developed markets sneeze, emerging markets catch a cold. This time, what market watchers are saying, is that inflation will not be uniform. They see a prospect of India seeing more stable inflation than what will prevail in the west. This premise is untested.

The best case, under the circumstances, is that inflation will affect India less than it impacts the west. Therefore, macros could stay stable longer. The worst case is that inflation soars in INDIA too, taking interest rates higher.

An investor needs to hedge his bets and be prepared for both scenarios. As the scenario evolves, he can firm up his strategy to the emerging context. In 2022, investors need to be far more open-ended and open-minded. One needs to prepare and not rush to predict.

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