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After The Bell: A smart bounce back; what should investors do on Wednesday?

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The index has to hold above 16,250 zones to witness an up move towards 16,400 and then 16,500 zones, while on the downside support is seen at 16,150 and 16,000 levels, suggest experts.

The 

Indian stock exchange bounced back sharply after briefly turning red on August 10, supported by a rally in telecom, IT, and banking stocks. The Nifty50 closed above 16,250 while the S&P BSE Sensex saw a rally of quite 150 points.

The Nifty50 hit a record high of 16,359 while the S&P BSE Sensex recorded a high of 54,779 in trade today.

Let’s check out the ultimate tally on D-Street – the S&P BSE Sensex rose 151 points to 54,554 while the Nifty50 rose 21 points to shut at 16,280.

Sectorally, buying was seen in telecom, IT, also as banks while selling pressure was seen in metals, public sector, realty, and utilities.

"What started as a sell-off in metal stocks dramatically triggered a sell-off within the small-cap Index after rallying for several months. The Midcap Index and therefore the PSU banks too were also not spared as both investors and traders booked profits,” S Ranganathan, Head of Research at LKP Securities, said.

“The index at close quite honestly wasn't reflective of the market mood because the breadth was very weak,” he said.

On the broader markets front – the S&P BSE Midcap index fell 0.8 percent, and therefore the S&P BSE Small-cap index fell by quite 2 percent – underperforming the benchmark indices.

India VIX moved up by 0.83 percent from 12.60 to 12.70 levels. Overall, lower volatility indicates that bulls are holding the command and declines are being bought.

On the front of the choice, the utmost Put OI is placed at 15,000 followed by 16,000 strikes while maximum Call OI is seen at 16,500 followed by 16,300 strikes.

Options data suggests a broader trading home in between 16,000 and 16,500 zones while an instantaneous trading range is between 16,150 and 16,400 zones.


Here’s what experts suggest investors should do on August 10:

Chandan Taparia, vice chairman | Analyst-Derivatives, Motilal Oswal Financial ServicesThe last half of the session witnessed a pointy decline to 16,200 followed by a recovery of 80 points within the last hour. It formed a Doji kind of candle on a daily scale because it closed flat almost its opening levels.

Now, the index has got to hold above 16,250 zones to witness an up move towards 16,400 then 16,500 zones while on the downside support is seen at 16,150 and 16,000 levels.


Palak Kothari, Research Associate at Choice Broking

Technically, the Nifty index has been trading during a range and hasn’t broken its previous day low and sustained above an equivalent one, which indicates bullish strength within the counter.

Furthermore, the Index has taken support from 50-HMA, which supports upside movement within the counter. A momentum indicator RSI & MACD is showing positive strength and Stochastic is additionally with positive crossover on the daily chart, which indicates an extra bullish move.

At present, the Nifty index has an instantaneous resistance at 16,360 levels while downside support shifted up to 16,150 levels.

Rohit Single, Senior Technical Analyst at LKP Securities.

After a robust volatile session, the index managed to shut the day on a positive note at 16,280 and formed a Doji candle pattern on the daily chart for the second consecutive day which signals indecision within the markets.

The Nifty again respected the support zone of 16,200 needless to say , and that we witnessed an honest pull-back from an equivalent level which hints until holding above 16200 zone.


The index may even see some extension within the existing consolidation zone of 16,200-16,350 zone and either side breakout will decide the ultimate direction move.

Manish Hathiramani, proprietary index trader and technical analyst, Deen Dayal Investments

The markets climbed well above the 16,300 marks and seemed all poised to shut above it too. However, there was a pointy and nervous sell-off mid-day which brought the index on the brink of 16,200.


We recovered well but didn't close above the 16,300 levels. Once we are successful in doing so, we'll witness a rally to 16,600 because the next target is for the Nifty.

Sona BLW Precision Forgings share price surges 16% on improved June quarter earnings

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The company reported a net profit of Rs 82.2 crore in the quarter ended June 2021 and its revenue was up 226 percent at Rs 501 crore

Sona BLW Precision Forgings share price touched a 52-week high of Rs 559.65, rising quite 16 percent intraday on August 10 after the corporate reported a net income of Rs 82.2 crore within the quarter ended June 2021.

The company’s revenue was at Rs 501 crore, growing 226 percent YoY. the internet order book was at Rs 14,000 crore as of June 30, 2021.

"The stock has completed its eight weeks of listing being a replacement IPO listed on the summer solstice and scaled an all-time high. it's holding its short-term average and moved higher with sharp volumes with positive momentum within the sector," said Vikas Jain, Senior Research Analyst, Reliance Securities.

"The current up move can lead the stock higher almost Rs 538 levels being 61.8 percent Fibonacci move from rock bottom of Rs 333 levels post listing," he added.

The company shares made a robust market debut, closing 25 percent higher on Midsummer Day.

The stock closed the session at the day's high of Rs 362.85 on the BSE, rising 24.69 percent over the difficulty price of Rs 291 and hit the 20 percent upper circuit compared to the opening price of Rs 302.4.

At 1235 hours, Sona BLW Precision Forgings was quoting at Rs 545.10, up to Rs 65.05, or 13.55 percent on the BSE.


 


PM Modi to release next instalment of financial benefit under PM-KISAN scheme today

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Under the PM-KISAN scheme, an annual financial benefit of Rs 6,000 is provided to eligible beneficiary farmer families, payable in three equal four-monthly installments of Rs 2000 each.

Prime Minister Narendra Modi will release subsequent instalment of monetary benefit under the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme today.

Under the PM-KISAN scheme, an annual financial advantage of Rs 6,000 is provided to eligible beneficiary farmer families, payable in three equal four-monthly installments of Rs 2000 each.

Prime Minister Modi will release subsequent instalment of monetary benefit under PM-KISAN scheme on August 9 at 12.30 pm via video conferencing, consistent with the PMO.

This will enable the transfer of an amount of quite Rs 19,500 crore to quite 9.75 crore beneficiary farmer families, the PMO said.

The prime minister will interact with farmer beneficiaries during the event and can also address the state .

The fund is transferred on to the bank accounts of the beneficiaries. during this scheme, ''Samman Rashi'' of over Rs. 1.38 lakh crore has been transferred to farmer families thus far , consistent with the PMO.

According to another PMO statement, Prime Minister Modi also will launch the Ujjwala 2.0 (Pradhan Mantri Ujjwala Yojana -PMUY) by delivering LPG connections, at Mahoba Uttar Pradesh on August 10 at 12.30 pm via video conferencing.

During the event on Tuesday, Modi will interact with beneficiaries of the Ujjwala scheme and also address the state .

During Ujjwala 1.0 launched in 2016, a target was set to supply LPG connections to 5 crore women members of BPL households.

Subsequently, the scheme was expanded in April 2018 to incorporate women beneficiaries from seven more categories (SC/ST, PMAY, AAY, most backward classes, garden , forest dwellers, islands).

Also, the target was revised to eight crore LPG connections. This was achieved in August 2019, seven months before the target date, the statement said.

In the Union allow fiscal year 2021-22, provision for a further one crore LPG connection under the PMUY scheme was announced.

These one crore additional PMUY connections (under Ujjwala 2.0) aim to supply deposit-free LPG connections to those low-income families who couldn't be covered under the sooner phase of PMUY.

Along with a deposit-free LPG connection, Ujjwala 2.0 will provide first refill and hotplate freed from cost to the beneficiaries. The enrolment procedure would require minimum paperwork and in Ujjwala 2.0, migrants won't be required to submit ration cards or address proof.

A self-declaration for both ''family declaration'' and as a ''proof of address'' will suffice, the PMO said.

Ujjwala 2.0 will help achieve the prime minister''s vision of universal access to LPG, it said.

Union Petroleum and gas Minister Hardeep Singh Puri and Uttar Pradesh Chief Minister Yogi Adityanath also will be present on the occasion.

Is RBI ready to relook at environment of high liquidity and low rates?

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Investors should allocate funds towards funds having a maturity of up to 3 years to prevent portfolio shocks from rising interest rate risks.


The Monetary Policy Committee (MPC) decided to keep policy repo rates and reverse repo rates unchanged at 4.00 percent and 3.35 percent respectively. The MPC also decided to continue with an accommodative stance for as long as necessary to revive and sustain growth on a durable basis. At the outset, it appears that MPC has maintained the 'status quo, but as one reads the statement in detail, the indications are clearly otherwise as reflected in the bond yields which were trading 5-10 bps higher post policy announcement.

The minutes of the earlier MPC in June 2021 had already reflected concerns on persistently high inflation readings and the fact that it was being overlooked primarily to combat the economic slowdown induced by Covid-19. The concern manifested itself in a dissenting vote in this MPC for maintaining the accommodative stance. However, the decision to keep rates unchanged was unanimous.

The MPC also outlined a sequentially increasing amount for the Variable Reverse Rate Repos from current Rs 2 lakh crore to Rs 4 lakh crore by September-end. The governor has reassured that this should not be read as reversal of the accommodative stance. However, reduction in liquidity is likely to result in overnight rates inching up slightly.

While high consumer price index (CPI) readings are still being considered transient and supply side driven, there is a clear concern on readings beyond the upper band 6 percent on RBI's inflation target. The MPC also did acknowledge that economic recovery is on expected lines. Thus, for the financial year 2021-22, while the GDP growth estimates were maintained at 9.50 percent, the inflation forecast was revised upwards from 5.1 percent to 5.7 percent, nearer to the upper tolerance band. It will be difficult for the central bank to justify its accommodative stance if the estimates were to be revised further upwards going ahead.

Markets have been concerned about the rising CPI for quite some time but the central bank was of an alternative opinion. This tussle was reflecting in the auction results on the 10-year benchmark instrument over the last few months. However, RBI did appear to relent a bit and acknowledge the concern on inflation as the 10-year benchmark was recently seen trading at 6.20 percent levels. Today's policy statement clearly acknowledged the market's concern on the rising CPI readings.

Covid-19 led economic slowdown had led RBI to take various measures to support economic growth and maintain an accommodative monetary policy in line with most central banks globally since March 2020. In today's policy, the central bank appears to be hinting, for the first time, that it is probably getting ready to relook at the environment of high liquidity and low rates which have been prevalent for almost a year and a half now.

There was a definite change in the tone of today's policy statement which, though subtle, was clearly indicative of things to come. The concern on growing CPI readings will continue to reflect on the benchmark going ahead - leading to heightened volatility on the longer end of the curve. Given the rate scenario, we believe that investors should allocate funds towards funds having a maturity of up to 3 years to prevent portfolio shocks from rising interest rate risks.

Job Advertisements: Time to come clean on salary to be offered?

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Job seekers want recruiters to disclose approximate salaries for the roles advertised so that they can make better decisions while applying for these positions.

Vini Ahuja, a 34-year-old software professional from Bengaluru, has been job looking for the past two months. the most important hurdle that she is facing thus far is that the incontrovertible fact that job positions being advertised doesn't offer any details about the salary and it's disclosed just one occasion a candidate has cleared the last round of selection.

"I have appeared for five interviews thus far and each place has an equivalent policy. In three cases, I acknowledged that the salary being offered was 15 percent less than my current CTC (cost-to-company). once we need to disclose our current salary and provides proof, why won't they," she wonders.

There is a rising demand among job seekers in India to urge proper salary disclosures for the positions advertised by recruiters. The request here is that albeit the precise salary can't be revealed, a ballpark should tend out.

The justification is that since companies insist that candidates disclose their current salaries, why shouldn't they too? And eventually, the salary is one among the crucial factors to make a decision whether or to not accept employment role.

Currently what happens during job interviews is that the compensation is discussed at the previous stage. due to this, it becomes a troublesome decision-making process for candidates.

Hiring managers would state that compensation may be a 'trade secret'. Fair point but what's the harm in giving a range? rather than saying Rs 28.7 lakh CTC for a software developer with 10 years of labor experience just say provides a range between Rs 25 lakh-30 lakh once a year .

This makes the method far easier. A candidate who currently earns Rs 35 lakh wouldn't consider applying for the role. rather than them rejecting the work offer at the last round supported the pay, it's way better to state the compensation upfront.

It also helps save time and shut critical positions quicker. tons of back-and-forth on pay happens between the candidate and therefore the company HR occurs after the ultimate interview has been cleared only because the figure isn't shared beforehand .

Varun Bose, a tax consultant from Kolkata had three rounds of interviews at a consulting company between March and July 2021. He had a good idea of the industry salaries and had agreed to use for this position (where he was approached by the company).

However only within the last week of July was he told the pay, which was actually 20 percent less than his current salary.

"I didn't take up the work but i actually regret the very fact that I could have applied at other places had this information been given before," he says.


Giving an indicative CTC upfront means time are often dedicated to interviewing relevant candidates to guage whether or not they are fit the stress of the work role. With this, the 'salary bargaining time gets significantly hamper and vacant positions might be filled during a few months.

If you expect transparency from employment seeker, it's essential that you simply be transparent too.


RBI Policy: MPC keeps repo rate unchanged at 4%

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The RBI MPC said it will continue with the accommodative stance as long as necessary to support a struggling economy hit by the COVID-19 pandemic.

The Federal Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC), on Transfiguration, kept the repo rate -- the key lending rate at which banks lend short-term rates to banks -- unchanged at 4 percent. The monetary policy stance has been retained at 'accommodative'. An accommodative stance means a rate hike is unlikely.


The MPC said it'll continue with the accommodative stance as long as necessary to support a struggling economy hit by the COVID-19 pandemic. The announcement came in line with what most economists predicted within the backdrop of a persistently high retail inflation and uncertainty surrounding the expansion.


Governor Shaktikanta Das cautioned against the threat of a possible third wave of the pandemic and guaranteed that the financial institution will remain vigilant. “The need of the hour isn't to drop out the guard and remain vigilant against any possibility of third-wave especially within the backdrop of rising infections in certain parts of the country,” RB Governor Shaktikanta Das said announcing the monetary policy.


The MPC has cut key lending rates by 250 basis points since February 2019 to support growth. The rate-setting panel said it'll closely watch the inflation-growth scenario going ahead while deciding the course of policy actions.


The RBI has increased the retail inflation estimate for the fiscal year 2021-22 to 5.7 percent from 5.1 percent projected earlier while retained the GDP growth target for the fiscal year at 9.5 percent.


Price pressures have stayed high within the recent months. The closely tracked Consumer Price Index-based inflation (CPI) for the month of June rose 6.26 percent, as food prices hardened further, and transportation costs rose thanks to higher petrol and diesel prices. The June print came slightly less than 6.30 percent for May, which was the very best in six months but continues to be above the MPC’s temperature of 2-6 percent.


Das said while the recent inflationary trend has evoked concerns, this is often more transitory in nature. Das emphasized that the conduct of MPC has been geared to rejuvenate growth. "Continued policy support is required to nurture a nascent economic recovery," Das said.


Buy Vinati Organics; target of Rs 2300: ICICI Direct

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ICICI Direct is bullish on Vinati Organics has recommended a buy rating on the stock with a target price of Rs 2300 in its research report dated August 02, 2021.


ICICI Direct's research report on Vinati Organics

Vinati Organics may be a leading manufacturer of specialty chemical and organic intermediaries with global market leadership in its two key products- 2- Acrylamido 2 Methylpropane sulfonic acid (ATBS) and Isobutyl Benzene (IBB). Starting with IBB and subsequent forays into IB, ATBS, Butyl phenols, the corporate is now moving towards antioxidants. the corporate has two manufacturing facilities at Mahad and Lote In terms of revenue contribution, ATBS constitutes ~40-50% of overall revenue followed by IBB of 20-30% while the remainder is from other segments like IB, Butyl phenols, and derivatives

Outlook

We retain a BUY rating on the rear of a far better growth outlook from ATBS and newer products like Butyl phenols and antioxidants We value Vinati Organics at 50x P/E FY23E EPS to reach a revised target price of Rs 2300/share (earlier Rs 2220/share).


Coming soon: Offshore campuses of Indian institutes

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The effort is part of a brand-building exercise by the Indian government to portray India as an international study destinationEducation ministry estimates indicate that close to 200,000 students travel abroad every year for higher education, resulting in an outflow of almost Rs 50,000 crore ($6.7 billion) every year.

Education ministry estimates indicate that on the brink of 200,000 students travel abroad per annum for education, leading to an outflow of just about Rs 50,000 crore ($6.7 billion) per annum.

Don't be surprised if your favourite college or university sets up a campus within us or UK . the govt, under the University Grants Commission (UGC), will now allow colleges and universities to line up offshore campuses abroad.

Sources said that detailed guidelines on the category of institutes, supported academic history, batch size and courses, are going to be released by the govt within the coming weeks.

“This is a component of brand name building of Indian institutes. at the present, India isn't top-of-mind for international candidates, especially from the West, and that we want to vary that,” a politician said.

Once the rules are released, it's likely that an initial list of institutes is going to be involved to measure their interest in fixing campuses abroad.


What does this involve?

The internationalisation of India's education system has been a key focus of the National Education Policy (NEP) – 2020.

Addressing a virtual gathering on July 29, Prime Minister Narendra Modi had said an 'office of international education has been found out at 250-plus universities in India and this may enable them to draw in foreign students.

Education ministry estimates indicate that on the brink of 200,000 students travel abroad per annum for education, leading to an outflow of just about Rs 50,000 crore ($6.7 billion) per annum.

Conversely, it's estimated that 48,000 international students study in institutes across India.


Promoting 'Brand India'

The education ministry wants to market 'Brand India' as a study destination through a mixture of schemes, including global campuses, incentives to foreign institutes to line up Indian campuses, also as 'twinning programmes'.

“Many institutes in India have international alumni who are now employed in large corporations. The institutes are going to be asked to form use of this alumni network as a part of the brand-building exercise,” another government official said.

Once the Indian institutes found out about offshore campuses, they're going to be ready to give international students a teaser of what's on offer. These students would then be encouraged to require up other programmes at the Indian campuses.


Will it work?

While the Indian regulatory agency for universities, the University Grants Commission, will give the go-ahead to line up offshore campuses, the important test would dwell on getting approvals from country-specific regulators.

In us or UK, as an example, new institutes (even offshore campuses) would wish to line aside fixed capital for college kids and infrastructure. an in-depth verification of the institute's financial background, statement of purpose and safety standards is additionally administered .


Prashant Maheshwari, a foreign education consultant based in New Delhi, told Moneycontrol that albeit the Indian government is in a position to secure faster approvals through its diplomatic relations with a rustic, the initial students would primarily be Indian.

“If you check out the US for instance, students are very wary of latest entrants. albeit an Indian institute that features a 100-year legacy sets up an offshore campus within the US, say, in popular locations like NY, Boston, Texas or Atlanta, the initial batches could consist mostly of persons of Indian origin,” he said.

However, unlike former US President Donald Trump, current President Joe Biden is receptive to new educational institutes being found out.

President Joe Biden had stated in February 2021 that he plans to extend grants for brand spanking new and existing education institutes to enhance graduation rates and reduce income disparities.

Here, any educational institute helping improve career outcomes for low-income students, students of colour, first-generation students, and students with disabilities are going to be provided funding.

In the UK, the USP of an institute and whether it's needed within the country is assessed before approval is granted. it's not an easy statement, but 'evidence of need', because the UK government puts it.

This would mean that an Indian institute fixing a UK campus would wish historical evidence of how it's essential for UK residents and the way different its courses would be from those offered by existing higher-education institutes. Final approvals are supported by this data.


The West Africa and East Asia opportunity

Stephen Duraiswamy, the Managing Partner at study-abroad advisory BreakHigh Consulting, explained that rather than aiming for the standard Western markets, Indian institutes looking to expand via offshore campuses should target markets like West Africa and East Asia.

“Places like Ghana, Senegal, Nigeria, Taiwan and Mongolia are where Indian institutes should eye a presence. These regions would enjoy quality international education and that they also are home to an outsized ex-pat community, which can aid brand building for Indian institutes," he added.

Twinning programmes would be a precursor to the present offshore campus expansion. Here, students from India could study one semester at an institute abroad through a partnership and the other way around.

Once the offshore campuses are found out, Indian students in domestic campuses could also get a chance to pursue a neighbourhood of their degree programmes at these international locations.

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IPO coming in August 2021

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Clean Science IPO subscribed 4.28 times on Day 2

If you missed investing in the IPO of the month of July, then do not think much about it because in the month of August many companies are coming with their IPO, which is starting on August 4, 2021. For more information contact Sharetipsinfo Investor Advisory. Friends, let us know which companies are coming in the month of August?

After the second wave of Corona, the Indian economy is slowly returning to normal. In the month of July, 6 companies got listed in the IPO and there was a very positive response from the investors. Looking at the reaction of the stock market, a total of 7 companies can be listed in the IPO in the month of August. Prominent names in this include Vindlas Biotech, Krishna Diagnostics, Devyani International Ltd., Shriram Properties, Fincare Small Finance Bank, Studds Accessories. Accessories Limited) etc.


List of IPOs Coming in August 2021 

Devyani International Limited

Vindalas Biotech

Krishna Diagnostics

Star Health And Allied Insurance Company Limited

Star Health And Allied Insurance Company Limited

Shriram Properties

Studds Accessories Limited


Devyani International Ltd

Devyani International Limited was established in 1991 and is the largest franchisee of Yum Brands and one of the chain operators business of Quick Service Restaurants (QSR). Its IPO is likely to come on August 04, 2021, and will be open for investors from August 04, 2021, to August 06, 2021. The IPO size of Devyani International Limited can be Rs 1400 crore, its price band can be fixed at Rs 86 - 90 per share. The company can be listed on both the BSE and NSE stock exchanges.


Windlas Biotech

Vindalas Biotech is a Pharmaceuticals Formulation Contract Development and Manufacturing Organization (CDMO) company. The company works in the search and supply of generic drugs along with 2 new medicines. Vindalas Biotech has announced its IPO on August 04, 2021, and will be open for investors from August 04, 2021, to August 06, 2021. The IPO size of Vindalas Biotech is Rs 401.53 crore, the issue price band of the company is Rs 448 - 460 per share. The company is listed on both BSE and NSE stock exchanges.


Krishna Diagnostics (Krsnaa Diagnostics)

Krishna Diagnostics is one of the largest chain diagnostic companies in India. It provides services in private and public hospitals, medical colleges, radiology and pathology etc. Krishna Diagnostics has announced the date for its IPO, which will be open for investors from August 04, 2021 to August 06, 2021. The IPO size of Krishna Diagnostics is Rs 1200 crore, of which Rs 400 crore will be issued new shares. Company's issue price band 933 - Rs 945 per share. The company is listed on both BSE and NSE stock exchanges.

Star Health and Allied Insurance Company Limited

Star Health is one of the largest private-sector health insurance companies and the largest retail health insurance company in the country. The promoters of the company include the country's veteran investor Rakesh Jhunjhunwala. The IPO of Star Health and Allied Insurance Company Limited is likely to come in the month of August and the IPO size may be Rs 2,000 crore, the issue price of the company has not been decided. The company can be listed on both the BSE and NSE stock exchanges.


Fincare Small Finance Bank

Fincare Small Finance Bank is a Microfinance Institution (MFI) based in Bengaluru. It started as a non-banking finance company. Later it got the status of Small Finance Bank (SFB) by RBI. Fincare has filed a draft red herring prospectus with SEBI and the IPO size is likely to be Rs 1,330 crore. The IPO date of the company has not been announced yet. Fincare Small Finance Bank can be listed on both the BSE and NSE stock exchanges.


Shriram Properties

Shriram Properties is a Bangalore-based construction company. It is one of the leading construction companies in South India. Shriram Properties has filed a draft red herring prospectus with SEBI and plans to raise Rs 800 crore through IPO. The company may bring its IPO in the month of August but no date has been announced yet. Shriram Properties can be listed on both the BSE and NSE stock exchanges.


Studds Accessories Limited

Studds Accessories Limited, a Faridabad-based manufacturer of helmets and accessories for two-wheelers, has filed a draft red herring prospectus with SEBI and plans to raise Rs 98 crore through IPO. It may bring its IPO in the month of August but no date has been announced yet. Studds Accessories Limited can be listed on both the BSE and NSE stock exchanges.

Conclusion

There is very good news for the investors in the month of August. A total of 7 companies are going to be listed in Apna IPO in the Indian stock market. Some companies have announced the date of their IPO and the date of other companies has not been fixed. IPO is a very attractive investment option for investors but like any other stock in the stock market, investing in IPO is risky. Therefore, investors should consult an experienced and expert investment advisor before investing in an IPO. 

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Global inflation on the rise. Why aren’t central banks worrying?

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Central banks are under pressure from rising inflation but so far they have brushed it aside as ‘transitory.’Representative image

The COVID-19 pandemic continues to challenge central banks. When the pandemic struck and economies nosedived, the pressure was on central banks to rescue and sustain the economy. This led to a fast opening of liquidity floodgates to stay the economy humming. A year later fortunes have changed. And now an increase in inflation has put pressure on central banks to tighten the hosepipes they opened last year. How do central banks deal with this sudden change of events?

The accompanying graph pictures this turnaround of fortunes during a few selected advanced economies. We see that since the pandemic in February 2020, inflation in these economies which was already less than the target of two percent, started drifting even lower. The low inflation indicated low demand which was due to global a slowdown as policymakers imposed lockdowns that curtailed economic activity.

From Jan 2021 onwards, we see rise in inflation due to stronger recoveries in economies and partly due to the bottom effect. In its June 2020 outlook, the International fund had projected the planet economy and advanced economies to shrink 4.9 percent and eight percent respectively in 2020. Since then, IMF has upgraded its forecast in subsequent outlooks. within the recent July 2021 outlook, it said the planet economy and advanced economies contracted 3.2 percent and 4.6 percent in 2020.

Central banks have come struggling thanks to this sudden rise in inflation. However, thus far they need stayed faraway from tightening monetary policy. The catchword for central banks regarding inflation is ‘transitory’ as seen in recent monetary policy statements of Federal Reserve System , European financial institution and Bank of England. IMF’s July outlook also used an equivalent word.

Why aren’t central banks worried? There are multifold reasons.

First, central banks actually are going to be proud of inflation being above target. For nearly a decade now, the inflation in developed countries has been less than targeted resulting in criticism. This was obviously ironical as central banks are often criticized for higher inflation. The Federal Reserve System even tweaked its framework from inflation targeting to average inflation targeting (AIT). Under AIT, if inflation has been lower for a particular period, the Federal Reserve System will allow inflation to be higher in order that average inflation over the whole period to be 2 percent.

Second, there's still slack within the economy and growth and unemployment are still not at pre-pandemic levels. this needs continued support from central banks.

Third, inflation has risen thanks to supply chain disruptions which are gradually easing with rising vaccinations and normalcy.

Fourth, commodity prices have also played a task within the recent rise in inflation. Core inflation, which excludes fuel and food prices, is high only within the case of the US.

Fifth, high inflation is additionally on account of the bottom effect. The chart shows that inflation ebbed in Feb 20 then begins to rise in Feb 21 (For the Euroarea, in December). So, albeit the inflation index has increased marginally from Feb 2021, the change from last year are going to be magnified as index had dipped last year. this is often the bottom effect. As a result, IMF within the July 21 outlook notes “the current spikes in annual inflation partially are the results of mechanical base effects from last year’s low commodity price”.

Last but not least, is that the important factor of inflation expectations. If inflation expectations also go up, then central banks poise themselves for action. In the US, while survey-based inflation expectations have edged up, those tracked by financial markets have remained on the brink of the inflation target. In Europe and UK, inflation expectations are broadly anchored.

Having said that, if current inflation remains elevated, inflation expectations also will inch up creating concerns for central banks.

Coming to Emerging and Developing countries (EDCs), inflation has risen there too. Unlike developed countries, EDCs are never during a comfortable position on the inflation front as food prices have both higher weightage within the inflation basket and influence inflation expectations.

On the highest of it, EDCs also will be watching inflation trends in developed countries. If inflation continues to travel up in developed world, pushing central banks to tighten monetary policy before expectations, one could see capital outflows from the EDCs. this is often what we saw in 2013 when Fed chair Ben Bernanke just announced the likelihood of tapering policy resulting in tantrums and chaos in EDC markets.

To sum up, inflation seems to be back after being within the wilderness for quite a decade. Ever since the 2008 crisis, economists are divided inflation in two camps. The pessimists have constantly warned that inflation is round the corner. On the opposite hand, the optimists have suggested that central banks needn't worry about inflation and will instead specialize in growth.

When inflation had remained muted, the policy weight was towards the second camp. The virus shock has brought inflation back to the discussion. Developed country central banks might not be worried over inflation now, except for how long is yet to be seen.

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