Inflation, as we all know is biggest enemy of investors as well as common man. Inflation has basically has same effect in stock markets as it has in normal day to day life. Actually Inflation and Indian stock markets work hand in hand. If we see definition of inflation : "sharp and persistent rise in prices of commodities every year"
Here are effects of Inflation on stock markets:
Stock markets are effected in same manner by inflation as the economy is for eg, INR 100 in 2010 are equal in purchasing power of INR 91 in 2011 with normal inflation of 9 percent per year. Similar effect is seen in stock markets across the globe.
Investor should also try to understand aspect of inflation prior to investing because inflation can reduce the value of investment returns. Inflation affects all aspects of the economy, from consumer spending, business investment, and employment rates, to government programs, tax policies, and interest rates. Investor can assume that stock investment are still a good hedge against inflation because a company’s revenue and earnings should grow at the same rate as inflation over the time. Hence the stock price keeps on increasing but again the problem comes during recession as it came in 2008 when money is lost in no time. Stock investing is always risky so always invest keeping your fingers crossed and forget about your investment in such turbulenttimes.
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