For Quick Alerts
For Daily Alerts

    Why It Maybe A Time To Move Away From Equity To Debt?


    As we write, the yield on the 10-year government bonds has surged to three-year high, after the Central Statistics Office (CSO) reported a more than expected rise in inflation data on Monday.

    Why It Maybe A Time To Move Away From Equity To Debt?
    Bond yields were placed at 7.903 percent level at the start of trading on Tuesday, a level we last seen on May 18, 2015. It had closed at 7.895 percent yesterday after the WPI numbers were released.

    The consumer price inflation or CPI surged 4.58 per cent in April, from 4.28 per cent in March. The Consumer Food Price Index, however, was a tad lower at 2.8 per cent in April, from 2.81 per cent in March.

    This was one reason bonds yields surged as investors remained worried that inflation in the economy was creeping. This now left bond traders worried that we could see the Reserve Bank of India, also hiking interest rates.

    This is good news for investors, who have been forced to park money in equities, as returns from debt have been very low.

    Why a move from equity to debt would be a good idea?

    Equity markets are likely to be extremely volatile in the next one year, with several state elections slated in in 2018 and 2019. With crude oil prices rallying a great deal, we are likely to see a further upmove of CPI inflation and a further rise in interest rates.

    Another point worth mentioning is that equity markets have rallied significantly since the Union Budget 2018. In fact, the markets are barely 3 per centage points away from a lifetime peak. With a trailing p/e of almost 24 times, the markets are extremely expensive. In fact, they are way above the long-term average of 17 times. Interestingly, unless there is sharp recovery in earnings, a p/e expansion like this cannot be justified. Also, with interest rates rising, we are likely to see investors moving away from hefty equity valuations to debt.

    Read more about: inflation equity debt
    Story first published: Tuesday, May 15, 2018, 13:28 [IST]
    Company Search
    Enter the first few characters of the company's name or the NSE symbol or BSE code and click 'Go'

    Find IFSC

    We use cookies to ensure that we give you the best experience on our website. This includes cookies from third party social media websites and ad networks. Such third party cookies may track your use on Goodreturns sites for better rendering. Our partners use cookies to ensure we show you advertising that is relevant to you. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on Goodreturns website. However, you can change your cookie settings at any time. Learn more