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Inflation’s coming down! For December 2014, Consumer Price Inflation is at 5%. This is a critical point – till November, the RBI has been worried about the “base effect”, when prices were very high the previous year so the inflation element would look small.

With December data, that fear is subdued to a certain extent. The fall in crude prices makes fuel prices go down, but at the same time food prices are low. Inflation might finally have been tamed.

If inflation’s down, RBI will cut rates. If RBI cuts rates, bank stocks will go up, and so might other “interest rate sensitives”. Bond rates will go up (because bond yields should fall).

This post covers the “why” and “how to profit” of Falling Interest Rates. You will see the Fixed Income Portfolio we have promised, with four mutual funds – of which we will buy some to profit from falling rates, over the next few months.

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