Inflation and interest rates contribute to market volatility

Inflation in the India market is running at 11 per cent, and there is a short-term risk that interest rates will dampen growth, contributing to market volatility, said Jai Singh, investments project manager at Fiducian.

“There is an issue of inflation in India. The RBI (Reserve Bank of India) is targeting 5-7 per cent inflation, but it’s well past that at about 11 per cent,” said Singh.

“The risk in the short term is that interest rates will dampen growth, and this beautiful run of earnings growth the companies have had may start to curb. So with that there’s been some volatility,” he said.

The lack of a capital gains tax in India leads investors to move in and out of stocks on a daily basis, causing volatility, but leading to healthy liquidity in the India market, Singh noted.

However, Singh said that in the long term the young population of the continent, its English legal base, and its focus on education, will create the “building blocks” for economic growth.

“It’s the largest democracy, the largest English speaking country in the world, it’s got an English legal system at its base, and they are very heavily focused on education.

“I think the other major demographic in its favour is that almost 65 per cent of the population is under 35, and 50 per cent are under 25,” he said.

“Those basic elements create the building blocks for economic growth, and that’s why we see an 8 per cent plus growth year on year, and its forecast for around that, and we feel that it should continue”.

Fiducian’s India Fund, which has $20 million in assets, has recently begun a distribution push, being added to Macquarie and BT Wrap solutions, and Netwealth.