In the earlier era, when banks used to offer good interests in the fixed deposits & inflation is not so high. It used to make sense to some extent to put money in banks.
Right now inflation is too high, RBI data only shows inflation in the range of 4-6% but it only takes few items into consideration to calculate that. Most of their prices are already regulated to a great extent, so inflation can’t be seen.
- Cost of medical expenses doubled from the past 5-6 years.
- No need to talk about School fee separately
- New home buyers are literally crying by witnessing the rates
- Taxations have increased, inflation is too high & lifestyle costs picked up while on the other hand, salaries have stayed almost constant. This is the worst combo.
Most of them are talking about India’s growth story but they fail to realize that they will just become spectators in India growth story if they don’t have money to invest. If you are common man & if your skills are also common, you will be having a hard time to make ends meet.
Pardon me for beating around the bush, coming back to deposit issues. Since FD’s are only offering around 7% interest rates & post taxation returns we will be getting is again around 5-6% only. We are not beating even inflation.
This is the reason people are becoming risky investors, in order to get higher returns for their parked money, they are venturing into Cryptos, Futures & Options, Dream11 and what not. People are frustrated about their job, not because of the work, but because of the direct & indirect taxes.
Now again, Nirmala Sitharaman is talking about New Income Tax act in upcoming 6 months, I thinking they have a separate team to investigate where the money is going & how to tax them if it is not taxed & how to increase the taxes if it is taxed already.
Problem with shrinking FD’s:
- Growth cycle will hamper
- If there are no deposits, banks will not have extra money to lend to corporates, they will not reduce loan lending rates when they are giving loans to people like you & me. Both are negative factors.
- Private banks like HDFC will have hard time in increasing the loan book size, i.e. the reason Share price has stayed constant since couple of years. It will figure out a way to solve the problem.
- Since corporates need money, they are raising money through FPO’s.
- Macro factors are also not in favour, USA is sitting with mountain of debt to repay.
- If rate cut happens, everything will pick up at slow phase, as money starts flowing into the system and then entering different asset classes.
- It’s not the time to get over excited about the market & invest in crap companies at unsustainable valuations, everything will not run from now.
- Check valuations & invest in phases or pick up your sector & ride the bike. Chemicals looks good right now.
I’m not SEBI registered analyst, please take the advice from your financial advisor before investing.
