Inflation is suddenly public enemy number one, says Ramesh Damani

Market Outlook

Veteran investor and market expert Ramesh Damani proclaimed that inflation has become public enemy number one. “My feeling is that markets will be grappling with inflation for the next few years,” Damani told CNBC-TV18 in an interview on April 5.

Damani’s comment comes in the backdrop of multi-decade high inflation prints in the US and European Union, and persistently high single-digit inflation at home. Globally, supply chain bottlenecks caused by the COVID-19 pandemic, the geopolitical crisis in Europe, and surging demand have seen commodity prices from oil to wheat soar to multi-year highs.

High inflation has seen a dramatic shift in global policymaking as central banks shift attention to staving of inflation expectations even as the global economy is still recovering from the scars of the pandemic.

Damani argued that the resurgence of inflation is a function of the increasing fragmentation of the global economy after nearly four decades of globalization. The pandemic, which started in China, has forced companies to rethink their supply chain networks to ensure the security of raw materials in the era of COVID-19 lockdowns.

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“We have to go back to the playbook of the 70s and 80s to deal with inflation,” Damani said as he argued that investors will need to put in time and effort to structure their portfolios against the vagaries of inflation.

That said, Damani remains extremely optimistic about the prospects for the Indian economy and the domestic stock market suggesting that the past 30 years of growth have set the stage for outperformance in the next 15 years.

“There is a growing sense that we are in a sweet spot here in India and that this bull market is not a flash in the pan,” Damani said.

The veteran investor credited the government’s move in 2019 to slash corporate tax rates sharply to bolster investment as the genesis of the ongoing bull market, which was momentarily halted by the onset of the pandemic.

Damani credited the resilience shown by domestic retail investors in the face of near-record-high outflows from foreign portfolio investors. “Retail investors have discovered India,” Damani said.

Participation from retail investors has soared over the past two years triggered by the ease of access through mobile trading platforms like Zerodha and the accumulation of savings during the lockdowns of the first wave and the second wave.

While the recent correction and consolidation in the market have dimmed optimism among investors, Damani remains confident that the bull market still has legs to run for some time to come.

“It seems we are in the second stage of a typical three-stage bull market,” Damani said.

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