Inflation at 4.28%, Hits 14-month low

Inflation in India has come down to 4.28%. It is at a 14-month low. You might ask what does this mean and how does it affect me ?. Here are a few implications of the same in the coming months

1. Home loan interest rates will come down by atleast 0.25 to 0.5% in the next few months if this rate of inflation is maintained. Thus those on floating rate home loans can cheer a bit.
2. Effective yields for Fixed Maturity Plans (FMPs) will start coming down and hence if you have some investible surplus then this is a good time to invest in a long term FMP.
3. The long term bond prices will increase in the anticipation of the decrease in interest rates. Thus long term bind funds will give good returns in the near term.
4. Bank stocks will start rallying as the markets will start pricing in increased business prospects for the banks because more people/businessed will start borrowing when the interest rates start to fall (Note that the bank index soared on friday after this news came out in the afternoon). Stocks of car manufacturers and two wheelers will also increase because of anticipation in increases business and buying by individuals.
5. When interest rate falls, the rupee will depreciate (we will see the correlation at some other time) and in which case the prices of gold will increase even if the prices remain stable in dollar terms. The prices of fuel could increase even if the crude prices remain the same in dollar terms. Bottom lines of IT companies could get a boost because of a weakened rupee.

The above are the obvious ones. Sentiment in the stock market increases and could rise to all time highs in the near future.