Inflation fears dying down?

Thu, 6 May Pre-Open

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This is the reason investing based on macroeconomic trends is such a dangerous proposition. It was only recently that most macroeconomic experts around the world were warning us about an impending inflationary spiral. They scared us to death on how inflation will damage one's purchasing power and how it would be wiser if one flocked to the relative safety of commodities like gold and silver. But not anymore. Events that have unfolded in the past few days have made quite a few of these so called experts change their mind.

With asset classes across the world coming in for some sharp correction, the theory of deflation is slowly gaining ground and is replacing the one based on inflation. These so called experts now argue that with the memories of the previous financial crisis still fresh, most people would do whatever it takes to avoid another crash and hence, would go slow on their spending and investments. This in turn could lead to surplus capacity and thus falling prices, which in turn could lead to deflation.

As far as we are concerned, we believe that trying to predict whether there will be inflation or deflation is a fool's game and instead, focus should be on companies whose products enjoy significant pricing power in the markets. Such companies are capable of passing on the rise in costs during times of inflation and are also capable of not lowering the same during the times of deflation, thus ensuring good returns during all times.

Bajaj Auto to push envelope further in small cars

Looks like Tata Nano will have competition soon. And not just in terms of size and pricing but also in terms of mileage. Yes, that's right. The car that has set new benchmarks in terms of mileage is likely to be beaten and that too by a handsome margin. As per a leading daily, Bajaj Auto, the company that is developing an ultra low-cost car in partnership with Renault-Nissan, is looking for a fuel efficiency of an impressive 30 kms per liter. This is a good 27% more than the one on offer by the Tata Nano currently.

If Bajaj Auto does indeed manage to achieve the same then it will further bring down the cost of ownership of small cars and help open up a whole new market. It should be noted that Indian two-wheelers, mostly bikes, are amongst the greenest in the world and with the advent of the small car by Bajaj, the country aims to become greenest in passenger cars as well. However, it remains to be seen whether the dream gets fulfilled or not.