Indian Economy

A myth: CPI and Nifty inversely related?

Its commonly believed by a trader that a Higher inflation means bearish trend in the market. That may be true for a day or 2, but interestingly i noticed that we are wrong! Attached graph is a comparative study between CPI and Nifty for last 10 years on QoQ basis. Green line is Nifty while other one is CPI ie., consumer price index or you may say inflation. As you all can notice that both the lines are trending the same direction except near bottoms and tops which clearly states that Inflation and Nifty are directly related on broader time frame. So now may be we can workout that inflation to some extent is needed for the growth of economy. If there is inflation more money would be spent by consumer which means large sum in circulation. More and more circulation of money in the market would divert extra margin or say extra profits to equity markets so logical it fits too. If u take recent example, we saw Nifty high in last march and since than we have seen decrease in Inflation too. Interestingly now in January we saw marginal rise in inflation which makes us believe that nifty low too can be near by or say in this quarter. Investors can now atleast buy partial portfolio at CMP. Can this theory be true, will check after we complete this quarter in March. Till then lets wait and watch!!

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