Inflation is overall bad for stocks no-matter how much pricing power you have.
Lets assume inflation sustain to 15%, i.e, bonds yielding >15%.
A company able to pass price increase rev up by 15% -but employee salary, other costs go up as well ..
1/n ๐งต
Lets assume inflation sustain to 15%, i.e, bonds yielding >15%.
A company able to pass price increase rev up by 15% -but employee salary, other costs go up as well ..
1/n ๐งต
net profits don't scale up with inflation due to expenses going up & all this 15% price increase is one time (lets say inflation sustain here)
Whereas all the bonds will get re-priced to yield >15%,
Whereas all the bonds will get re-priced to yield >15%,
whereas an equity investor instead of pricing in 13-15% yield today will start re-pricing every equity to yield 25 % which means everything will get re-rated by -50%.
To some extent, that's what has been playing out for some months in the market.
To some extent, that's what has been playing out for some months in the market.
The reason why despite price increase by market leader (Britannia) in 2021 itself (when no one in stock markets worried abt inflation) is down -16% since this call (it can do down further if markets realize inflation is not transitory).
One should not ask barber (Prashant Jain) do you require a haircut or not.
I still think given how 10 years and 2 years is trading in US that markets think inflation is transitory and we still haven't seen the re-pricing of equity based on new long-term inflation expectations.
I still think given how 10 years and 2 years is trading in US that markets think inflation is transitory and we still haven't seen the re-pricing of equity based on new long-term inflation expectations.
Inflation is the least understood thing and nobody knows how it's going to behave. Irrespective of what Fund managers say, you have to understand that are you a buyer because you believe that inflation is transitory today or bcoz Prashan Jain said so.
If u believe its transitory & it turns out to be transitory then you will make 14-15% nifty50 level of long term returns & 7.5-8.5% in 10-year AAA bonds.
but if inflation remains sticky above what is priced in today (look at 10-year Gsec) then you will end up making -ve M2M returns in all of the stuff Stocks or Bonds you own as markets going to re-price everything based on new reality..
What do I think? I agree with the consensus (what is priced in) that we have seen peak inflation at least for the short term.
Given how inflation behaved in the past 1970s, 1940s or even Weimar republic inflationary bust -
Given how inflation behaved in the past 1970s, 1940s or even Weimar republic inflationary bust -
Inflation never goes up linearly, like everything inflation goes up cyclically if it has to & I think we might be at the first cycle peak of this decade, Also Central banks are fighting it & they will win given they have the power to induce recession by killing demand.
Loading suggestions...