IS INFLATION ON THE HORIZON ????

追加: 2026-05-30

[00:00:01]Good morning.

[00:00:03]It's Vijay here. Today is 29th May 2026, a Friday. I hope you all had a good holiday yesterday and looking forward to an exciting day in the markets. Today I would like to discuss one of the most important topics which will get discussed over the next few months I suspect. So we are starting it here uh in our video and I will come back to this on a regular basis because this is in my opinion very important on how you build your portfolio or how you shuffle your portfolio. So we have been doing that uh for the last 2 three days because uh of this inflation monster.

[00:00:45]Now the question is is inflation on the horizon? If you look at CPI data, inflation is about 3.5 in April which is well below the 4% uh 4% number which RBI looks at 4% plus or minus 2 that is up to 6% RBI is supposed to tolerate inflation and if it goes to 2% also it is supposed to tolerate and do no action. So if you really look at just the number 3.5 looks very small. So therefore where is the inflation is what the question will be. Please note this is for April month when the prices of fuel and LPG had not been increased. Now let's look at something called the WPI.

[00:01:32]What we talked about was CPI. WPI. WPI is the wholesale price index. Now it used to be in line with CPI for a very long time. Suddenly in April it went up to 8%, 8.3%.

[00:01:50]Now that's nearly 5% greater than CPI.

[00:01:54]Now is this an aberration or is this going to be a start of a trend is the question which we have to ask ourselves.

[00:02:01]Now I am preparing this to be a start of a trend. The reason being that WPI which has been calculated for April apparently has gone up because of the rise in fuel and LPG and manufacturing which all have gone up significantly. Now again I reiterate that there was no increase at the consumer level for the uh fuel uh fuel prices either LPG in any big manner. LPG was there but not so much so at the consumer level. In fact, it is not there at all at the consumer level and the petrol price and the dies diesel price. Now in May, the petrol price and diesel price have increased but not still significant enough to take care of the deficit. We hear that oil marketing companies are losing thousand crores per day which means there will be many more or some more uh increases as we go along which will feed into inflation.

[00:02:58]Generally as a thumb rule the inflation uh between the inflation differential between WPI and CPI narrows over a threemonth period. So one if you see a 8% inflation in April it is logical to assume by September we will get 8% inflation in CPI provided everything remains the same which means the hormones act hormos is still stuck more than hormones the oil prices are stuck between 90 and 100 and you know the hormos trade will take its own time to reopen supply shocks from other countries will prevail if we see all this then one should not be surprised to see inflation crossing 6% which is the RBI's uh limit which is the tolerance of RBI 6%. So 8% if it happens then there will be a crisis. Now let's this is not something you know uh where one is trying to do some speculation we are only looking at data of the past and we are looking at WPI data which is at present and then we are projecting into the future. So there is no such you know uh fear-mongering or trying to you know trying to you know do some theoretical calculations. It is not it is staring at our face. Inflation is staring at our face. It's on the horizon and the horizon is becoming smaller. Now, now what is the uh issue leading up to inflation is the differential in the 10-year yield between US treasuries and India Indian 10ear yield. Now typically now let's see where we are today. US Treasury yield 10 year is about 4.45. It had gone to 4.6 last week. It has gone is now at 4.5.

[00:04:50]I had once thought that it will go to 3.5. However, as of now, it has not happened. The US administration is actively seeing that it will go to 3.5.

[00:05:02]I don't know what measures they will take because they have not taken any measures for more than a year under Bessent who had predicted that he will target 3.5. Now 3.5 seems very far away.

[00:05:15]This is very important that at 4.5 what is the differential? Now Indian inflation sorry Indian 10-year yield is around seven. So the differential is about 2.5.

[00:05:27]If the differential narrows that means the difference between Indian inflation Indian 10ear yield and US 10 year narrows then the bond market the people putting money will not put money in India because it is safer to put in US.

[00:05:41]Though they may get a lower yield but the currency will be playing around currency will weaken. So they will get they will not get any benefit of that yield differential. So it's unlikely that money will come in especially in the bond market uh which we expect we are expecting for a long time which has not happened and therefore the Indian yields have to go up or the US have to come down. Now the differential of 2.5% is very much away from the average differential in yield for the last 30 years. Now I checked the data for about last 10 to 12 years and the differential yield there was 3.74 or 3.75 the different average differential in the yield. Now I heard the RBI MPC committee member who said for 30 years the differential average yield has been 3.7 which means at 2.5 then it has to go to 3.7. Now how will it go to 3.7? Either we take it up by 100 basis points the yield which should go up by 100 basis points which it has to go to eight which means you have to increase interest rates or the US yield has to fall to 3.5. Now we do not know what will happen but the RBI has to really uh you know dig deeper into their understanding when they come on June 5th to see whether they're going to raise raise incre on the face of it India has to raise interest rates by 100 basis points which look ridiculous right now looks ridiculous to even think of any raising of rates forget about 25 basis 50 basis but pure mathematics tells us that the interest rate diff differential if it has to come to 3.75 there should be at least 100 basis point you know raising by the RBI now whether RBI will do it or whether they'll hope that US yields will come down to 3.5 and so the differential of 3.5 which will be there at 7% yield now will be maintained and that you know will save the consumer from increasing the interest rates now we will talk about what stocks will benefit, what sectors will benefit later. But suffice to say the market is telling us that the way the market is buying into commodity stocks, the way it is buying into metals, the way it is buying into pharma like metals and commodities will get affected positively if the interest rates go up. In an inflation, high inflation regime, the commodities go up. Pharma doesn't necessarily is not connected so hence it can go up on its own own path the consumer staples will also go up who all have pricing power now I don't know which of these consumer staples like lever or ITC or Colgate have pricing power to increase the rates in a high inflation environment real estate also should normally do well and banks also should normally do well because their interest income will increase I think that is too early to judge. We will come back to we will revisit because this is an important thing which many people are not realizing it. It is staring in our face.

[00:09:05]It is on the horizon. The 3.7 average differential should be maintained sooner than later. Which way we don't know but we have to wait and watch. What we have done is we are focusing more on a commodities that is metals including precious metals and pharma in our portfolio. We are rejigging that way so that we can take care at least we will be protected against inflation which I think will hit us sooner or later which means from September onwards I'm expecting assuming all things being equal if there is peace and if the oil prices crash to $60 and then the yields 10ear yields come down below four to 3.5 then you know we don't have to worry but even then even then the far the metals will do well because then the global economy will do well, pharma will do well because you know uh the global economy will do well. So either way we are in a win-win situation if we are in metals and pharma and just avoid the noise around other stocks and sectors. So that is what we are doing.

[00:10:13]Whatever you do, I hope it is successful. Thank you for joining me.

[00:10:17]It's been a long um session.