The Reset Returns

US Monthly inflation at 7.5%; Crude at $95; Soaring food prices; Gold at $1860; and US 30YR yield at 2.2% – The American economy is set for an interesting economic year where its problems arising from growth need to be addressed, without causing serious disruptions in the economy. What happens in the US economy will certainly have a bearing on the rest of the world including India. The stock market boom is also part of this construct.

As the US works to bring inflation under control, we will see a significant impact on global investment markets this year. The key metric for emerging markets to keep in check is inflation. We are unwilling to reduce liquidity or raise rates. The argument by those supporting this approach is that inflation should be managed by addressing the supply side.

This year’s economic performance will be very critical for India to regain the growth momentum. If we manage to keep inflation under check, we should be one of the best growing economies and investment hungry countries.

The best way to approach investing under the circumstances is to be cautious, pragmatic, methodical and precise. One should avoid being too speculative, stay away from overheated assets, maintain balance in asset allocation and channel fresh savings to the right places.

Generating returns will be much tougher this year and will require a carefully curated investment strategy. Investing will see far more challenging times and investors should be well prepared.

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