Investing by hedging: A safe bet to save in a context of runaway inflation – EXPLAINED

Inflation rates in India have reached unprecedented levels. Annual inflation was 6.95% in March 2022, the highest since October 2020. Higher-than-expected inflation prompted the government to resort to calibrated measures to rein in prices and the RBI to raise the key rate . twice in just 36 days. The high prices are mainly due to the disruption of the global supply chain after the pandemic and the Russian-Ukrainian war, the fall in the value of the currency and the overall increase in the prices of goods and services.

Inflation, which is a natural phenomenon in an economy, if it stays above a particular level or let’s say above the tolerance level for a long period of time, it can impact the value of savings . This will eventually decrease the purchasing power of the money a person saves from their hard-earned sum over a period of time. When you save money, that seems important in today’s environment. But that’s not the goal. When you save, you think about the rising prices of services or commodities tomorrow. But this amount might not be significant in so many years due to rising prices. Therefore, it is suggested that you give your investment an extra cushion by covering yourself.

Mahesh Shukla, Founder and CEO of PayMe India, explains that hedging is important to protect the purchasing power of your money. To hedge against inflation and protect the value of investments, investors often opt for strategies to prepare for a sudden drop in the exchange rate by cultivating asset classes that could give you a return equal to or higher than the prices in the future. “Traditionally, the ideal way to hedge against inflation is to invest in assets that will either hold their value during inflation or rise over time,” he said.

Effective strategies to hedge against inflation:


Investing in gold is traditionally considered the best hedge against inflation. Its prices recover during a high inflation economic scenario. However, there are counter-arguments that gold is no longer an inflation hedge, but it is certainly a safe zone for consistent gain in times of crisis.

If you look at the returns of gold over the past 10 years, it’s phenomenal. The yellow metal has appreciated 134% over the past decade. On January 1, 2010, gold was sold at the rate of Rs 16,650 for 10 grams. The value of the same on September 7, 2019, touched Rs 40,280.

Image source: INDIA TV

Historical Gold Rate in India

Therefore, investing in gold could be considered a perfect alternative investment to hedge against inflation.

“Especially for Indian investors, gold can be more of a currency hedge than an inflation hedge since the price of gold fluctuates with world prices and the rupee exchange rate rather than prevailing inflation in the country,” said Mahesh Shukla.

Ravi Singh, vice president and head of Research Share India, said gold was one of the most preferred assets to hedge investments against inflation. “Other commodities used as raw materials, including oil, natural gas, industrial metals, wheat and corn, also act as a natural hedge against inflation,” he said.


In an inflationary scenario, the bond market is generally more affected than the stock market. It is therefore wise to shift a certain part of the portfolio from bonds to equities. Most experts suggest that a 60-40 stock-bond equation is the safest and most conservative combination in an investment portfolio. Buying quality stocks that can yield a higher return in the long run might be a good decision.

Ravi Singh said equities tend to do well in inflationary environments as corporate earnings also rise sharply, especially in cyclical industries. Certain sectors such as energy, power, consumer goods and pharmaceuticals have always generated good returns in such scenarios.

“Stocks rise over time as the business grows and they could pay dividends a return above the rate of inflation will protect your declining value for money,” said Manoj Dalmia, founder and director of Proficient. Equity.


The NIFTY50 index since its inception in November 1996 has generated an annualized return of 12.2%, according to stock market data published in the July 2017 whitepaper.

India Tv - NIFTY50 performance since inception, nifty50 comeback in 25 years

Image source: INDIA TV

NIFTY50 performance since inception

Based on daily analysis of NIFTY50 rolling returns from 1999 to 2019, if a person investing in the index with an investment horizon of at least 5 years has never suffered a loss. Over the past 10 years, the index has generated total returns of 15.98% per year, according to market data published in the April 2019 white paper.

On a rolling return basis, the index has returned more than 15% per year 60% of the time over a 10-year investment horizon. Over a 7-year investment horizon, the index has produced an annualized return of over 15% per year 48% of the time.

India Tv - NIFTY50 absolute return

Image source: INDIA TV

NIFTY50 absolute return


Having international exposure can be a very effective strategy in tough economic conditions like inflation. While many economies around the world are affected due to US stock indexes, major economies like Italy, Australia and South Korea remain the least affected. Investing in stocks and bonds in these markets can offer investors the opportunity to generate good returns.

“The two most effective and least expensive ways to diversify investments internationally are exchange-traded funds (ETFs) and mutual funds,” Mahesh Shukla said.


With the pace at which India is developing, real estate would be at the forefront. Private investment in the sector is increasing, due to greater transparency and better returns. Investing in real estate therefore has many advantages. Similar to commodities, durable assets like real estate tend to rise even more in an inflationary environment.

Yuvraj S Rajan, Raiaskaran Group Director, said inflation benefits property owners who make money from their rental properties, especially those in property sectors with short-term rental contracts like multi-family complexes, because the increase in housing prices translates into higher rents.

“Finally, because property values ​​tend to rise steadily over time, real estate can act as a hedge against inflation. pre-crash level in less than a decade. Real estate investments can provide stable income while tracking or outperforming inflation in value terms,” he said.

Over the last decade (2010-2019), real estate prices in major cities, including metropolises, have increased by an average of 38%, compared to an increase of 52% from 2000 to 2009. The average price of houses is rose from Rs 2,490 per square foot in 2000 to Rs 3,784 per square foot in 2009. Similarly, the average property price in the top seven cities rose from Rs 4,063 per square foot in 2010 to Rs 5,599 per square foot in 2020.

Property prices in the MMR (Mumbai Metropolitan Area) increased by 33% to Rs 10,610 per square foot in 2020 from Rs 7,965 per square foot in 2010. The same figure increased by 67% between 2000 and 2009, the highest of any city.

According to the Raiaskaran Group, the country’s real estate sector is expected to hit $1 trillion, up from $200 billion in 2021. It will account for 13% of the country’s GDP.

Another possible alternative is to invest in real estate investment trusts (REITs) or companies that own and operate portfolios of commercial, residential and industrial properties, which can be bought and sold easily.

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