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Below is the Quote on The domestic markets gave in to a riot of sell off which by Dr. Joseph Thomas, Head of Research, Emkay Wealth Management

The domestic markets gave in to a riot of sell off which resulted in the frontline indexes falling by more than 3.75 %, a very rare thing in an otherwise booming market recovering fast from the pangs of the pandemic- induced economic sluggishness. The rising inflationary expectations in the US and the consequent rise in bond yields have been a subject of intense discussion of late. US inflation is expected to rise in the coming months, and therefore, the US yields too. The 10 Year US treasury benchmark has already moved up swiftly to 1.50 %, a steep rise from its lowest point of close to 0.50%. The Fed Chair had indicated that economic recovery has a long way to go and the risks of a runaway inflation are quite low. Rising inflationary expectations and the rising yields have a potential to adversely affect the equity sentiment and the equity markets. Prominent studies, covering the last 150 years, throws up results that are interesting. These studies reveal that the optimal inflation levels are somewhere around the 2 % to 3 %.  Below 3 % and but a rising inflation is the time when PEs rise, the valuations rise, and are able to sustain at higher levels. Inflation greater than 3% impairs the market’s ability to provide positive real returns. But, for the US or for the other economies, there is still much room left for inflation to reach the 3 % mark, which should afford the markets some solace. The US unemployment level is actually close to 10 %, and the Fed has indicated that liquidity support would continue till economic recovery is sustainable.”

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