The RBI raised interest rates by 0.25%. Should that really be a worry? If so, for whom? The banks aren’t going to sit around without passing on the cost increase. In fact, they may first try not to raise their cost. So, the deposit rates may well stay where they are. But, it would be too tempting for the banks to pass over the chance to raise rates on consumer loans and home loans. After all, the demand for these loans is still quite strong. With savings shrinking, consumers are leaning more on loans to fund consumption. So, the consumer finance space will see loans get costlier. Trade loans would also get more pricey. Businesses which are already stretched will have a rough time. A small price to pay for a decade long party with easy money.
Iwiz: In adversity, lies opportunity.
What happens if India throws up a split verdict? This fear pervades the minds of investors. Let us look back at two of the most prominent split verdicts in recent times. Both these verdicts came at the time when India badly needed a clear mandate. We are referring to the verdicts of 1991 and 1996. In both instances, India badly needed reforms. The split verdict hardly mattered. The situation in 2014 is no different. Politics simply can’t stop progress. And, reforms are the only answer. The majority of investors will realize that reforms are inevitable once the politics is done with. When they do realize the hard reality, the markets will run up very quickly giving little time to buy. The minorities who already have read this right are buying now. Of course, there is the also possibility of a clear mandate this time. That will be the icing on the cake.
Istrat: Raise your equity allocation now.