Stack Wealth 2024 Investment Strategy: The Repo Rate Story

As inflation starts to fall globally and central banks indicate rate cuts, the RBI is also expected to start cutting rates from next year. This will mean falling interest rates and a good performance in bonds and debt markets.

View the other parts of this report here:

• An emerging opportunity: The Rising Affluent Class
• Large & Mid Caps are undervalued: The Overheated small cap zone

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Understanding Repo Rates & Inflation

It's quite like balancing a scale. Think of it as the central bank acting like a careful custodian, tweaking the repo rates to keep the economy in harmony.

When repo rates go up:

It's as if they're gently tapping the brakes on the economy. People and businesses find loans a bit more expensive, so they might think twice before spending on big items or ambitious projects. It's like cooling down a party that's getting too loud.

When repo rates are cut:

It's like they're encouraging everyone to be a bit more adventurous with their money. It's like opening the taps a bit more to water the garden of the economy.

Businesses might take this as a sign to invest and expand, and regular folks might decide it's a good time to buy that car or renovate their home. But, just like a garden, too much water can lead to problems – in this case, too much spending can lead to prices going up, which is our old friend, inflation.

Part I: Rising Repo Rates

To counter inflation, central banks globally raised interest rates, a clear trend depicted in this chart.

In 2022, rates surged from zero to four and a half per cent within a year—an abrupt slowdown, akin to slamming brakes on a car speeding at 200,000 miles per hour. The decisive action aimed to regain control over inflation.

Part II: Inflation Slowing Down

Now, it's time to gradually press on the accelerator.

Initially, after the abrupt rate hike, inflation soared, but now it's rapidly declining. US headline CPI, from a peak of 9%, has already returned to 3%, within the normal range. Hence, there's no need to maintain exceptionally high-interest rates; central banks will soon commence rate cuts.

Part III: Anticipated Rate Cuts

Now because they will cut interest rates very, very soon, it means that debt is a place to be you will make money in debt funds.

As inflation starts to fall globally and central banks indicate rate cuts, the RBI is also expected to start cutting rates from next year. This will mean falling interest rates and a good performance in bonds and debt markets.

It's time to focus on duration, which involves investing in longer-dated bonds. Another option is credit risk funds, which invest in companies with lower credit ratings but are in a corporate upcycle and may see rating upgrades.

Long-Term Debt Stack: Our Recommended Offering

Given the potential rate cuts and the anticipated performance of the debt market, Stack Wealth has a tailored solution for you.

Our team of experts has meticulously curated a mutual fund portfolio that directs your investments towards high-quality rated bonds with high duration.

The Long-Term Debt Stack portfolio is best suited for investors who have at least a 1-year investment horizon, are comfortable with some volatility in portfolio returns, and are looking to generate substantial returns in the short to medium term.

Retirees who are looking for a kicker in addition to a steady income stream without taking disproportionate risk may also be well-suited for this mutual fund portfolio.