Inflation!!!Inflation!!!Inflation!!!

Wherever I go nowadays I hear the word inflation more than the COVID, Russia Ukraine war, or the latest Monkeypox, So let’s look at what is this inflation and how is it affecting the common people and traders alike.

According to Investopedia, “Inflation is the decline of purchasing power of a given currency over time. A quantitative estimate of the rate at which the decline in purchasing power occurs can be reflected in the increase of an average price level of a basket of selected goods and services in an economy over some period of time. The rise in the general level of prices often expressed as a percentage, means that a unit of currency effectively buys less than it did in prior periods”.

Inflation affects everyone and it does not spare anyone, It affects the rich and poor alike and of course, the poor are affected more in comparison to the rich. When the buying power of people is affected people tend to spend less and start to save more for the rainy days. This has a cascading effect on the economy where more money is not coming to the market it affects the business that invested heavily and it will slow down the overall consumption and in turn the economy which is the barometer indicator of the growth of a country.

Let’s look at what is the current situation across the world and especially in India. Post COVID all the central banks started to mint more money and there was a free float of money across all countries for people to sustain the effects of COVID (Loss of livelihood, loss of business, medical, etc..). This was a good intention and well thought out plan by all central banks for the countries ravaged by the COVID. But like most Investors who know how to enter the trades but do not know when to exit the same happened with these banker’s. There was a whole lot of free money (Especially in the US) in circulation and interest rates were at their lowest.

After seeing that a lot of free-flowing money (mostly selling the sovereign bonds) is increasing the debt levels of countries and the cost of all the prices shooting up due to the overall supply chain being affected by COVID. When the world was seeing hope of recovery from COVID then came the shock in February of Russia Ukraine war which pushed the prices of crude oil to the highest price in many years and this, in turn, affected the prices of edible oils and wheat which is the main staple of many countries.

Now each country started to look inward than the commitments of globalization, Most countries started to ban exports of edible oil and other main staple foods in self-preservation rather than the export-oriented economy. and this was reverse globalization.

Many economists talk about stagflation affecting India or India may enter a phase of stagflation, But I personally don’t think that India will enter that phase in the near future, As most of these economist’s tend to underestimate the buying power of rural India, Even though they are the underdogs in consumption culture but they do not tend to with hold on spending when it comes to marriage and other family functions. They are not compulsive/impulsive buyers but they do more of a systematic and planned expenditure.

With inflation soaring to all-time highs in almost all countries, Mostly affected were US and UK which saw the highest rates which it had not been seen in the last 30 years. India is no exception to this we saw the retail inflation soaring to almost 6.95% which is above the comfort levels of RBI, So we saw a 40 basis point increase in repo rate on May 4th. Now let’s see how is it affecting the Market and Traders like us.

As we all know the market is a forward-looking animal and it almost discounts everything, Market had anticipated these moves by central bankers well in advance and we had seen the same reflecting in most of the scrips going on a downward spiral by March itself. People who do not understand this will only realize it after it has happened.

In the COVID lock down, we saw a huge addition of new traders in almost all countries and India was no exception we saw a staggering 63 lakh new DEMAT accounts opening between the month of April-September 2020 period, representing an increase of 130% on a year-on-year basis, which added the liquidity to the markets.

With FPI’s continuous selling and the market is on a downward trajectory or a marginal correction in the market to add this most offices have started to end the work from home options we are seeing a lot of these traders/investors exiting the market. Without the proper education and knowledge, most of these investors got on boarded or started their investing journey and many of them would have burnt their hands in this correction. Crypto being the most preferred mode of investment/trading for the new age traders we can see how they are getting slaughtered in this market correction which in turn makes them exit the market forever.

So what is that the new traders/ wannabe traders need to do to overcome this situation? As the saying goes “Self-investment is the best investment.” I would recommend people to learn first and understand the basics of the market, instruments in which you can trade, and what is your trading style. It’s an investment you need to do sustain and be on the right side of the market else you will become one more statistic in the market that has the reputation of “Only 5% of the people make money in the Stock market”. If you want to be in the 5% in the market I would suggest to do the below.

1. Find a suitable program / training and learn about investing and trading in stock market especially if you are beginner

2. If you have entered the market already and your investments have lost it’s value, seek professional advice if you can hold them, exit from them or re-allocation into different scrips

3. If you have lost in trading, treat that loss as a cost of your mistake and now invest in your learning first before you can re-start your trading.

Disclaimer: The views, thoughts, and opinions expressed in this article belong solely to the author, and not to be construed as an investment or trading advise. The above information is intended to be used and must be used for informational purposes only.