Aggressive rate hikes could prove counterproductive in short run

Emkay's advice for investors

• Prudent diversification of asset allocation can help create long-term wealth for investors

• Investors should look at Indian manufacturing as a key theme for investment as we witness the China+1 strategy unfolding post the pandemic

• With regards to market and fund flows, the road ahead will be a lot different than the previous two years

New Delhi: Aggressive rate hikes by central banks globally to tame soaring inflation may prove counterproductive in the short run, Emkay Wealth Management said on Wednesday.

Underlining that geopolitical tensions, soaring crude oil prices and worries around recession in the developed countries are some of the major risks threatening the markets, Emkay Wealth Management however said India fears no major risks. However, there are risks related to slowing of exports and currency depreciation, the company said during a webinar. The Indian rupee plunged to an all-time low of Rs 81.93 per dollar on Wednesday.

"Inflation has become a concern for most major economies, and central banks are resorting to aggressive rate hikes. This move could push up inflationary pressures, proving counterproductive in the short run. The dollar index and crude are the two key indicators to watch out for in the next few quarters," Joseph K Thomas, Head of Research, Emkay Wealth Management said. Central banks across the globe including in the US and Europe and other countries have raised interest rates sharply in the recent past to rein in high inflation, mainly triggered by geopolitical tensions impacting the supplies. On asset allocation, it said prudent diversification of asset allocation can help create long-term wealth for investors.

Vishal Amarnani, Head of Fixed Income, Emkay Wealth Management said: "We are witnessing fund flows to fixed income and debt due to the rising rates, also a wider belief that rate will scale higher from here." The company said the system liquidity is in a deficit of over Rs 21,800 crore. This along with the delay of inclusion of Indian bonds in the global bond index has also led to a rise in the government securities yields. The benchmark yield is back to 7.40-7.50 levels as expected.

"However, yields for long fixed-income instruments have increased and seem attractive in the near to mid-term," Amarnani said. Recognising the importance of diversification across asset classes and equity markets, it said investors should look at Indian manufacturing as a key theme for investment as "we witness the China+1 strategy unfolding post the pandemic". With regards to market and fund flows, the road ahead will be a lot different than the previous two years, it said. Emkay Wealth Management, which offers bespoke services to over 1,600 families to date, expects its assets under management to reach Rs 10,000 crore in next 3-5 years. The company, a subsidiary of Emkay Global Financial, has an AUM of Rs 1,900 crore.