Impact of Rise in Interest Rates

US Fed has talked about slowly withdrawing stimulus and also raising rates by 3 times in 2022. Bank of England has raised interest rates by 15 bps and ECB has talked about raising interest rates. Even SBI has raised interest rates by 10 bps on its FD’s. So, interest rates are rising across the globe. Be careful and cautious as valuations will melt across asset classes. If valuations melt across asset classes, the negative wealth effect will set in. As negative wealth effect sets in, there will be some negative impact on the economic growth.

Amidst above situation, invest in companies with a very stable business model, sustainable growth, rising dividends and dividend yields, clear visibility of capex and modestly or undervalued in terms of PEG ratio. PEG is the Price to Earnings/Growth Ratio. If the PE of a company is 10 and the company is growing comfortably at a 20% CAGR, PEG is 10/20=0.5 and that makes for a compelling investment. We have many such ignored stocks currently. These stocks do not promise immediate returns in view of market volatility and sentiment but will produce lot of wealth in the long run for the investors.