New Delhi: Investors in India could consider mutual funds (MFs) and gold as preferred hedges against rising inflationary pressures, global financial services group ING has said.
Inflation is on an uptrend in India as well as the Asia- Pacific region and is likely to rise further, it said in a quarterly survey.
Food inflation of India rose to 17.56% for the week ended 23 January, the second week in a row it has increased and economists expect prices to spiral further in the next two to three weeks.
“Inflationary pressure is indeed rising fast in India than other markets in Asia primarily due to rising food costs and strong domestic consumption. To that, we anticipate interest rate hikes for India beginning first half of 2010,” ING investment management India MD & CEO Navin Suri said.
According to the survey, outlook for the first quarter of the calendar year 2010 indicates that mutual funds, gold and stocks could be considered as preferred tools to beat price rise.
“Investors’ outlook for the next quarter (January-March) indicates that mutual funds followed by gold and stocks would be considered as preferred tools to beat inflation,” Suri added.
Earlier, investment in stocks used to be the preferred hedge against inflation, but its popularity is on a declining trend when it comes to combating inflation.
The diminished popularity of stocks is evident from the fact that 75% of investors preferred stocks as investment tools in the third quarter of 2009, whereas 60% invested in the said mode in the fourth quarter of last year, ING said.
Stocks are still a preferred investment option but their preference has dropped below mutual funds and gold.
However, as many as nine in 10 Indian investors still expect the stock market to stay at current level or rise in the first quarter of 2010, ING said.
In the year 2009, there had been a substantial rise in the Bombay Stock Exchange benchmark index Sensex even though the 30-share index saw a major dip in late October.
“Local mutual funds seen as a key tool for fighting inflation; 61% of Indian investors in the fourth quarter of 2009 considered investing in mutual funds to beat inflation the next quarter compared to 32% in the third quarter of 2009,” the survey said.
In the fourth quarter of 2009, Indian investors invested more heavily in local mutual funds (78%) compared to overseas mutual funds (14%), ING said.
The survey added that other popular investment tools were gold (70%) and local stocks (60%).