Following an interest rate hike in the US and with more on the cards for the year ahead, India’s Reserve Bank is also expected to raise interest rates by 35 to 50 basis points. This move is inevitable in the face of inflation, and will make borrowing costlier, eventually affecting growth and causing some pain. Since a global recession awaits and rate hikes aren’t going to stop any time soon, it’s time to think about the investment best suited for higher interest rates.
Although government bonds and long-term investments such as ULIPs and floating rate bonds are a good option to weather the storm, investors can also cash in on rising interest. Although rate hikes are meant to restrict the cash flow for keeping demand low, banks will inevitably earn more by passing on higher interest to borrowers. Considering this scenario, betting on banking stocks can be a profitable move for months to come.
As trading activity in the stock market increases, brokerages will make money ahead of a rate hike. They can also earn higher interest once the rates are increased. Among equities, going for companies which have a higher cash pile is better, because they’ll earn more interest from their reserves.
Strong real estate investment trusts are also a good option, since real estate rates go up with rising interest rates. But it’s important to look for the correct REITs to minimise risks when borrowing for real estate purchases goes up.