Inflation at the target is the objective of the Monetary Policy... Some inflation is good for the economy and demand and spending...

"Inflation at the target is the objective of the Monetary Policy... Some inflation is good for the economy and demand and spending..."

If few rules of the thumb are applied to the stock investing too much volatility could be avoided, investors should buy on big corrections and sell on big appreciations... Buy cheap stocks of good companies that have given consistent returns in the past... In other words, Buy stocks when their P/B ratio is lower than 3 and P/E ratio is high...

And, if you do this during correction and sell during appreciation that would help stabilise prices and the market and increase profits...It is time to invest in battery stocks used in EVs that would compete with oil demand and prices...

Corporate Tax Cut was a big bonanza for the stocks which gained 3000 points in just two days and is likely to increase corporate earnings and cashflow in the medium term and pricing power and more investment and employment and demand/supply and price and growth expectations...

There have been quite sufficient stimuli given which is likely to showup in competitiveness and productivity of the economy and lower unemployment and increased demand/supply in the forms of lower interest rate, lower oil prices, GST and Income tax cut (2018), GST and Corp Taxcut...

As the benefits of low cost and prices have been passed to the consumers and producers it would increase disposal income and demand and growth... Most of the wishes of the industry are fulfilled, except removal of LTCG tax...

Lower tax by the Govt could increase demand and price expectations and investment spending... Lower taxes are also a form of public spending...

The RBI and Govt may scrap interest rate linked deposits and instead they could link bank deposits with bonds which give better inflation adjusted premium, lower bond yields increase bond prices and vice versa or something like inflation indexed bonds...

Real GDP or price expectations are important for investment decisions and the economy is on the Knife-Edge (Solow), if they expect lower growth they would invest less and growth rate and expectations go down and vice versa... if firms increase employment and demand and growth and prices and expectations might improve...

Higher price expectations increase demand or delay supply and spending and lower price expectations increase supply or delay demand which self reinforce prices and expectations... Lower prices should increase demand and higher prices should increase supply to stabilise prices and investment and growth...

If Chinese could grow their GDP double every 5-6 years, why couldn''t INDIA?... All we need to is to scale up our ambitions and investments to be a valuable part of the global supply or exports chain by relying on domestic and foreign competitiveness and productivity... 

Like low growth is vicious or virtuous and self-reinforcing, high growth is also self-fulfilling... Once the growth starts INDIA would soon catch up space probably even better than China...

INDIA has improved a lot on ease of doing business and competitiveness... INDIA is a developing country where taxes and prices are high so that redistribution of income and spending for the poor become possible...

As the economy grows with reforms and production and demand increase, a larger base could lower tax burden on all, also due to lower poverty, and increase competitiveness... Lower prices would increase demand and supply and growth... which have been a characteristic of Chinese growth... cheap currency, too...

To big scale of production reduces cost of production and price and increase income manifold...

The Govt may provide everybody a unique bank acc. no. linked with Adhar Card, easy to remember to facilitate transaction on the mobile phone without POS machine, also for security purpose against counterfeit notes and illegal transaction, to promote cashless payments and reduce black money...

It would also reduce the cost of printing money and could help capitalise banks and increase monetary policy rate cut transmission...

Bonds, Equities and the Broader Economy...

Real or inflation adjusted bond yields and interest rate are important from the investment view... The bonds are paying inflation premium and term premium too which make up higher nominal bond yields, higher inflation expectations are also responsible for higher nominal bond yields...

But, now, inflation has increased which has reduced real bond yields and real interest rate, which could increase demand... Nonetheless, higher inflation expectations have increased bond yields expectations and lowered bond price expectations and more investment in the equities and the production and the inventories... Higher bond yields and expectations mean that the economy has expectations of a bounce back in demand and spending...

The RBI has used a flexible inflation targeting of 4% with a band of 2% on the either side which means the RBI could remain neutral between 2-6% and inflation lower than 2% attracts rate cuts and above 6% rate hikes... This time it must avoid rate hikes upto 6% and remain neutral, but higher inflation means hold on further rate cuts since real interest rate has gone below 1%...

Low and stable real interest rate and higher inflation expectations could increase spending in the economy... End of the rate cut cycle might increase demand and spending...

The RBI may adopt a neutral approach, open to work both ways since inflation is close to its medium term target of 4 - 6%...

Higher food and oil prices get transmitted into the higher cost of living or wage cost and higher cost of borrowing or interest cost and higher price level or inflation means lower savings and investment and consumption... Lower GDP...

The RBI does not control bond yields and wages, they are market determined, though only indirectly... which also decide demand and spending in the economy...

Oil prices are doomed to see a big correction with a downward bias... EVs have changed the market share equation; oil prices are unable to make a comeback (higher prices) despite of supply cuts...

Market share depends on competitiveness and increasing productivity which means lower prices and higher demand and supply or quantity and prices and profits and expectations... Though prices are volatile and move between high and low...

Whatever investors do in terms keeping in the mind rational expectations would be self-reinforcing and self-fulfilling... If they expect or the market hopes that prices would increase, higher demand or lower supply would increase prices and vice versa... Nonetheless, if they increase demand at low prices and increase supply at high prices that would narrow the volatility in the market...

Lowest interest rate means that it would not go down, bond price also would not increase and not profitable in the short run, which means that recession or slowdown or low growth and prices and expectations have reached the bottom so people increase investment in assets or inventories or stocks which have a higher price expectations...

During slowdown bond prices go up that have an inverse relationship with the broader economy and lower interest rate and bond yields... Higher bond yields expectations or lower bond price expectations due to increase in demand and prices and interest rate could increase selloff in the bond market in the short run an further increase bond yields or lower bond prices and increase allocation to the other asset class that have higher price expectations during recovery with an accommodative money and demand supply policy...

The Govt is planning to change base year for growth… The change in the base year after adopting the inflation targeting framework looks reasonable... From that viewpoint 2015-16 is quite normal low inflation, below 4%, and high growth rate, above 8%... and could serve as the base year.... Near 4% average inflation is good to keep the inflation target framework…

Investors must take into account P/B ratio which must be below 2 which shows that the stock is not too overvalued and the possibility of correction is low, nonetheless people must invest slowly if they are investing short term on more correction in the stock...

Secondly, high P/E ratio above 20- could help getting higher returns... P/E ratio shows that the stock has given high returns in the past... Consistency in returns and growth brighten expectations....

Long term investors in good companies need not to worry... 10 years time is a good time horizon for investment... Mutual Funds choose stocks carefully and the risk is diversified... 

Prices and Investment Demand and Full Employment...

Investors move from higher yields to lower yields or higher prices to lower prices markets in order to increase the value of investment because you buy cheap and sell high to increase revenue... 


Low and stable inflation and expectations increase investment and demand and prices and expectations foreign capital inflows, too, and vice versa... 


Lower prices increase the value of money and investment... Low prices or inflation signal that big money would pour in through investments... Lower price also mean higher competitive real wages and demand or consumption, exports are too likely to increase... 


Lower prices make the economy more productive and competitive more money supply would increase demand, foreign trade and investment, too... 


Lower prices mean that the economy has the capacity to expand further... but, too much higher prices and expectations could do the opposite and lower price expectations and delay demand and increase supply...


The rate cuts we are seeing in the US is the insurance against the trade-fights since unemployment rate is too low and stable, but demand and prices are low also due to tariffs which might get a boost if the Fed cuts interest rates... 


The Fed is trying to increase inflation and expectations in the broader economy to increase spending, but tariffs are increasing uncertainty for earnings... Had there was no fight over trade practices the economy did not need rate cuts... 



Since unemployment and prices are low and stable... Lower prices could increase demand, but lower price expectations due to lower borrowing cost may reinforce delay in demand and spending and supply could also increase...


Any intervention by the policymakers by the way of manipulating money supply and prices and expectations in the market could reinforce prices and expectations in the market... 


For instance lower prices and expectations make policy makers increase money supply and prices and expectations, but higher money supply as long as there is unemployment in the economy, and lower borrowing cost would increase investment and lower unemployment and increase supply and further lower prices... 


Nonetheless, in the face of no intervention prices may help recover fast to restore price stability and full employment.


Lower bond yields may mean that money has flown to safety and people are expecting slowdown... Or due to lower prices and interest rate cut and expectations which increase money supply to bonds and could further lower bond yields because there is slowdown in the broader market including the stock or inventory markets... 


Lower bond yields also mean that prices or inflation and expectations are also low due to hold or delay in investment and over supply, but bond prices may increase profits... Higher price expectations from an increase in value due to low price and increase in demand boost spending and revenue and growth and vice versa... 


Too much volatility in prices could deter or slow the process of recovery to the objective of price stability and full employment...

Lower Consumer Prices and Increase Real Incomes...

There is a strong negative relationship between prices and demand/supply, lower prices increase demand and vice versa... we have evidence from China that cheap products increase demand... If all the stimulus by the Govt, in the face of Corporate Tax Cut and GST and rate cuts by the RBI and also lower oil prices to an extent are passed on to consumers it could give demand a big boost in terms of higher purchasing power and spending...

NREGA is only a shortrun approach to the problem of jobs... Giving money to the poor could directly add to demand and inflation without adding to the productivity of the economy, but providing skills could boost both productivity and demand and is a longrun solution of the problem...

Nowadays very few of the economists talk about the distribution of labour according to specialization and skills... Stable employment according to skills is the best insurance against poverty... Poor people must have the requisite skills in order to get a job...

It is worth a thought that if we allow private foreign investment in sectors like manufacturing we need to reduce the cost of capital for domestic companies, since lower borrowing cost of foreign companies make them more competitive, because without that domestic companies would not be able to compete directly and lose market share...

Liberalising the banking sector and borrowing abroad are far more important for creating employment than increasing import of goods and services... Stable foreign capital in the banking could do alot to help increase capitalization of the economy and increase interest rate cut transmission by the RBI...

Capital moves from lower yields to higher yields and increase supply of capital and lower yield expectations and vice versa, moreover there is convergence of policy and interest rate across countries in the longrun... Lower borrowing cost in the developed countries could help foreign capital inflows and help increase demand...

Constrains on big settlement in cash or only through bank accounts could also help capitalise banks... During Demo the banks were flooded with liquidity, but it was only temporary, which could help increase transmission of rate cuts by the RBI...

The Govt could increase tax exemption limit upto Rs 8, 00,000/per year and is giving reservation to economically backward upto the same to the uppercaste... and tweaked the income slabs in the last budget in 2018...

There is no point in reducing tariff, corporate tax cut, interest rate and oil prices if it is not passed onto the consumers which may boost real wages and incomes and profits..... Slow transmission may take time in recovery in demand and price and growth expectations, when everybody tries to buy at the sametime it increases price expectations which increase spending and growth....

People should buy or invest when prices are low and sell when prices are high, that would also stabilise prices... Lower prices expectations delay demand and higher prices expectations increase spending, but lower prices are more expansionary because it increases quantity and profit and viceversa...

Nonetheless, like growth is uncertain, prices expectations are also uncertain, people's lower price expectations are also subject to uncertainty... If they were so good at predicting price and growth, no business would ever fail...

There is no useful unemployment data every month and quarter for the RBI to give forward guidance for investment and prices like real interest rate, real wages and real exchange rate and the real-GDP growth and reduce uncertainty for business...

People in INDIA pay direct taxes, indirect taxes and many other types of tariffs... cess... Nonetheless, overall lower these could help increase demand-supply-prices-quantity-and-growth and expectations by increasing productivity and competitiveness of the economy...

It would also boost real wages and incomes... and real profits... when the economy grows at a healthy pace revenues are also bound to increase... Tax like interest rate is also a tool to tackle demand-supply-prices-quantity and growth and expectations..

Recent pickup in inflation, close to a percent cannot be totally ascribed to food and fuel, it is a good recovery in prices which may point to recovery in demand after September...

INDIA's current real-GDP at current prices is 7.99% which is considerably higher than current real-GDP at 5.4% at 2011-12 prices because prices in 2011-12 were significantly higher than the current year which has increased the value of deflator than the current year when prices are low compared to 2011-12... In a sense the Indian Economy is still growing at 8% when prices stable... normal... could suit the concept of the base-year...