High inflation as well as easy liquidity pushed up the prices of almost all assets

- Possibility of change in policy following increase in prices of various commodities

Rising inflation has boosted global markets on the one hand and raised concerns on the other. Adequate liquidity on the financial front has boosted bond and equity markets. Investors were not worried about inflation at this time. They were happy that the investors benefited greatly from this favorable situation. Central banks, on the other hand, have been active for the last several quarters to ensure adequate liquidity, while maintaining easy liquidity and gradually raising the prices of almost all assets.

However the situation is not the same all over the world. For instance, despite the easy fluidity in real estate prices in India, investors have not shown much interest. Central bankers are worried about growth and moving forward on inflation concerns. Lack of healthcare system equipment, delays in vaccine availability and rising unemployment in some parts of the world have forced central banks to turn to the much-anticipated easing monetary policy since last year.

RBI Governor Das took action in early 2020 and extended a helping hand to bankers, market participants and the entire credit market. Credit defaults were avoided due to a number of measures, including the extended credit mortgage offered by the RBI, after adversity on some credit fronts in 2015 and 2016. Rising inflation affects equity and bond markets. Last week, Indian and global equities saw sharp improvements, and US 10-year Treasury yields rose. Rising yields on bonds make the value of the currency more expensive.

The Indian market is affected by the behavior of both domestic and foreign investors. The behavior of investors is so far on the expected lines. Moreover, the impact on the debt market is expected to be limited in terms of its impact on the Indian equity market. Indian debt liability by foreign players is less than 5 per cent, so their investment behavior will also be relatively less affected. The assets of foreign investors in the Indian equity market are significant and any recall by them generally affects the price of equity. Moreover, any trading change in the equity or debt market by foreign investors affects the Indian rupee. The macro results in India may differ from the global macro parameters as India differs with poor health care system, slow economic activity, corona bias wave and delay in vaccine availability. The direction of domestic inflation is influenced by demand and supply. Overall lack of demand is expected to keep prices down; However, supply chain disruptions due to lockdowns in some states push up the prices of certain items.

The after-effects of global inflation will only be felt when foreign investors feel the need to repurchase their investments. Rising inflation in the US will push up rates there, India and the US. The difference between the interest rates will be narrower. The rise in commodity prices indicates that some policies may change sooner or later - so all eyes are on macro data and policy makers.