Moneycontrol Pro Panorama | The interest rate jigsaw: a high-stakes game

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Bank branches are busy fielding depositors flooding in to break their low-yielding deposits to take advantage of rising deposit rates. And if rates go up again, as they tend to due to lag effects, depositors will repeat the process. They will be glad that rates are going back up across the board with even public sector banks — frequented by pensioners and preferred by senior citizens for safety — hiking rates sharply.

Aparna Iyer writes about what the scramble for deposits means, pointing out that banks with branch muscle and a large proportion of low-cost deposits will flourish while those dependent on bulk deposits will suffer, relatively speaking. Another crucial question is if the increase in interest rates will lead to higher deposit flows. Do read her analysis to find out more. After all, banks have not turned altruistic all of a sudden and are seeing higher demand for loans and therefore, the need for more deposits. A big question here is, will deposits give real returns — stripped of consumer inflation — enough to swing investors back to FDs (fixed deposits). Or, will investors constrained by higher spending due to inflation and the promise of higher returns in riskier assets, still shy away from FDs?

Here’s a fund manager’s take on how investors should be looking at the opportunity presented by rising interest rates. Pankaj Pathak of Quantum MF points to the challenges faced by fixed income investors in the past three years and how, with the ground situation changing, it may be time to take a relook at the asset class. Since the fixed income market tends to be cyclical, he believes that the next three years will look very different from the preceding three years. Do read.

While investors may continue to ponder over whether they should shift some money from equities to debt, that's a good problem to have as the Indian economy is gathering steam. The increase in bank credit demand that’s fuelling bank appetite for deposits itself is a sign of the economy moving into a higher gear, writes Subir Roy. India’s forecasted GDP growth is being revised upwards and while stock markets may be a bit under the weather, investors may be underestimating the recovery, says a renowned analyst. Do read to know more.

A main reason for equity markets looking weak is hawkish central bank-speak globally, which in turn is driven by rising inflation. Today’s FT pick outlines how serious that problem is, with core rates still rising in a majority of the 33 countries that FT tracks. Read to know more. Of course, market experts will differ and Bill Gross of Pimco thinks the US Fed needs to pause now and wait to see the impact of its measures. Otherwise, the market could pay a heavy price not just in terms of a recession but by springing hidden debt traps. The stakes are high.

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Ravi AnanthanarayananMoneycontrol Pro