This document discusses the relationship between inflation, interest rates, and their implications on various economic sectors in India. It provides background on types of interest rates set by the central bank and how inflation is calculated. Higher inflation tends to decrease purchasing power while higher interest rates increase it. The document then analyzes how changes in inflation and interest rates have impacted stock prices in several industries like real estate, FMCG, consumer durables, pharmaceuticals, and automobiles over time. Graphs show that rising inflation often corresponds to falling stock prices in sectors while decreases in inflation coincide with price increases. The conclusion discusses how sustained high inflation could eventually lead to higher interest rates and impact demand across the economy.

1. INFLATION, INTEREST RATES AND ITS IMPLICATIONS
ON VARIOUS SECTORS
Submitted to –Dr. Latha Sreeram, Finance HOD
Submitted by – Saiprasad Manchal

2. Central
bank
Interest
Rate
Inflation

3. TYPES OF INTEREST RATES
Cash Reserve Ratio - 3%
Statutory Liquidity Ratio – 18.50%
Repo Rate – 4.00%
Reserve Repo Rates - 3.35%

4. IMPACT OF INTEREST RATES
Interest Rate is
low
Purchasing
Power will
increase
Inflation will
increase
Inflation will
decrease
Purchasing
Power will
decrease
Interest Rate is
high

5. • Oil price
• Current account deficit
• Inflation
• Interest rates
• Industrial Production
• GDP
• Forex Reserves
• Weaker rupee
• Employment
• Saving & Purchasing Power
• Investment
Weak Economy / Mild Economic Growth

6. INFLATION
 Inflation is defined as a sustained increase in
the price level or a fall in the value of money.
 When the level of currency of a country
exceeds the level of production, inflation
occurs. In other word value of money
depreciates with the occurrence of inflation.

7. TYPES OF INFLATION
Cost-Pull Inflation
Causes of cost-pull inflation:
 Rising wages
 Import price
 Commodity cost
 Profit push inflation
 Declining productivity
 Higher tax
Demand-Push Inflation
Causes of demand-push inflation:
 Increase in the money supply
 Increase in the government spending
 Foreign growth or foreign price
increase
 Lower interest rate
 Rising wages.

8. Calculation of Inflation
1. Consumer Price Index
A consumer price index (CPI) measure changes in the price level of a market basket of consumer goods and
service purchased by household. In India the current rate of CPI is 6.93.
Formula: Cost of basket of goods in old year / Cost of basket of goods in base year *100
Example:
CPI for 2016 is 16/16*100 = 16
CPI for 2016 is 20.50/16*100 = 128
CPI for 2018 is 19.50/16*100 =122
Solution:
Goods Price 2016 Price 2017 Price 2018
Milk 14 15 4.56
Petrol 10 13 12
Ticket 2 2.50 3

9. 2. Wholesale price Method
Whole sale price index (WPI) is designed to measure the changes of price in the primary and whole sale market.
The current rate of WIP is 2.76
Example: The WPI for the year 1970 for a particular commodity say wheat. Assume that the price of a kilogram of
wheat in 1970 is Rs.5.75 and in 1980 is Rs. 6.10.
The WPI of wheat for the year 1980= Price of wheat in 1980 – price of wheat in 1970 / Price of wheat in 1970 *100
= (6.10-5.75 / 5.75)*100
= 6.09
Since WPI for the base year is assumed as 100,WPI for 1980will become 100 + 6.09 = 106.09

10. INFLATION, OIL PRICES AND GDP
0
2
4
6
8
10
12
14
0
20
40
60
80
100
120
140
Jan-07
Jun-07
Nov-07
Apr-08
Sep-08
Feb-09
Jul-09
Dec-09
May-10
Oct-10
Mar-11
Aug-11
Jan-12
Jun-12
Nov-12
Apr-13
Sep-13
Feb-14
Jul-14
Dec-14
May-15
Oct-15
Mar-16
Aug-16
Jan-17
Jun-17
Nov-17
Apr-18
Sep-18
Feb-19
Jul-19
Dec-19
Oil Prices, Inflation and GDP
GDP Grow(%) Oil Prices Inflation Rate (%)
Decline in Oil Prices, Fall in
Inflation.
Rise in GDP
Rise in Oil Prices,
Increases Inflation
Decline in GDP
Dates Inflation(%) Oil Prices
Jan-07 6.3729 53.52
Jan-08 9.09 90.69
Jan-09 12.31 53.86
Jan-10 10.53 77.1
Jan-11 9.5 92.69
Jan-12 10 107.05
Jan-13 9.4 105.1
Jan-14 5.8 105.48
Jan-15 4.9 60.7
Jan-16 4.5 36.57
Jan-17 3.6 52.62
Jan-18 3.43 61.19
Jan-19 4.54 53.96

11. IMPACT OF INFLATION ON STOCK MARKET
Growth Stocks
Inflation
Rate
Stock
Prices
Value Stocks
Inflation
Rate
Stock
Prices

12. REALTY SECTOR
Prestige 2010 2012 2013 2020
Share Price (Rs.) 184.87 174.35 155 247.35
Inflation rate (%) 10.53 10 9.4 3.34
DLF 2007 2010 2013 2020
Share Price (Rs.) 503.9035 261 155.9 155.9
Inflation rate (%) 6.372 10.53 9.4 3.34
0
2
4
6
8
10
12
14
0
200
400
600
800
1000
1200
7/2/2007 7/2/2008 7/2/2009 7/2/2010 7/2/2011 7/2/2012 7/2/2013
DLF
Adj Close Inflation Rates
8.8
9
9.2
9.4
9.6
9.8
10
10.2
10.4
10.6
10.8
0
50
100
150
200
250
10/25/2010
12/25/2010
2/25/2011
4/25/2011
6/25/2011
8/25/2011
10/25/2011
12/25/2011
2/25/2012
4/25/2012
6/25/2012
8/25/2012
10/25/2012
12/25/2012
2/25/2013
4/25/2013
6/25/2013
8/25/2013
10/25/2013
12/25/2013
Prestige
Adj Close Inflation Rate

13. FMCG INDUSTRY
HUL 2007 2009 2013 2020
Share Price(Rs.) 162 219 511 2346
Inflation rate (%) 6.37 12.31 9.4 3.34
ITC 2007 2009 2013 2020
Share Price(Rs.) 33 61 171 176
Inflation rate (%) 6.37 12.31 9.4 3.34
0
2
4
6
8
10
12
14
0
100
200
300
400
500
600
700
1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013
HUL
Adj Close Inflation Rate
0
2
4
6
8
10
12
14
0
50
100
150
200
250
1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013
ITC
Adj Close Inflation Rate

14. CONSUMER DURABLES
0
2
4
6
8
10
12
14
0
20
40
60
80
100
120
140
160
1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013
Havells India
Adj Close Inflation Rate
Havells India 2007 2009 2013 2020
Share Price (Rs.) 21 37 139 643
Inflation rate (%) 6.37 12.31 9.4 3.34
0
2
4
6
8
10
12
14
0
50
100
150
200
250
300
350
1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013
Titan
Adj Close Inflation Rate
Titan 2007 2009 2013 2020
Share Price (Rs.) 23 58 220 1151
Inflation rate (%) 6.37 12.31 9.4 3.34

15. PHARMA SECTOR
0
2
4
6
8
10
12
14
0
50
100
150
200
250
300
350
400
450
500
1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013
Torrent Pharma
Adj Close Inflation Rate
Torrent Pharma 2007 2009 2013 2020
Share Price (Rs.) 76 161 431 2821
Inflation rate (%) 6.37 12.31 9.4 3.34
0
2
4
6
8
10
12
14
0
100
200
300
400
500
600
700
1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013
Sun Pharma
Adj Close Inflation Rate
Sun Pharma 2007 2009 2013 2020
Share Price (Rs.) 60 135 549 514
Inflation rate (%) 6.37 12.31 9.4 9.4

16. AUTOMOBILE SECTOR
Eicher Motors 2007 2009 2013 2020
Share Price (Rs.) 319 601 4744 2171
Inflation rate (%) 6.37 12.31 9.4 3.34
0
2
4
6
8
10
12
14
0
1000
2000
3000
4000
5000
6000
1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013
Eicher Motors
Adj Close Inflation Rate
Hero MotoCorp 2007 2009 2013 2020
Share Price (Rs.) 481 1176 2928 2928
Inflation rate (%) 6.37 12.31 9.4 3.34
0
2
4
6
8
10
12
14
0
500
1000
1500
2000
1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013
Hero MotoCorp
Adj Close Inflation Rate

17. RELATIONSHIP BETWEEN INTEREST RATE (REPO RATE) AND INFLATION

18. REPO RATE AND INFLATION GRAPH
0
2
4
6
8
10
12
14
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
31-Jan-07 31-Jan-08 31-Jan-09 31-Jan-10 31-Jan-11 31-Jan-12 31-Jan-13 31-Jan-14 31-Jan-15 31-Jan-16 31-Jan-17 31-Jan-18 31-Jan-19 31-Jan-20
Repo Rate and Inflation
Rates Inflation Rate (%)
RBI Governor D. Subbarao

19. IMPACT OF REPO RATE ON SECTORAL INDICES
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
0.00
10,000.00
20,000.00
30,000.00
40,000.00
NIFTY FMCG Index
Closing Prices Repo rate
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
0
100
200
300
400
Nifty Realty Index
Prices Repo rate
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
0.00
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
12-02-2020
11-12-2019
11-10-2019
14-08-2019
Jun
12,
2019
10-04-2019
13-02-2019
07-08-2018
12-06-2018
14-02-2018
08-08-2017
10-10-2016
11-04-2016
06-10-2015
08-06-2015
11-03-2015
21-01-2015
03-02-2014
03-11-2013
26-09-2013
09-05-2013
23-04-2012
Nifty Auto Index
Prices Repo rate
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
0.00
5,000.00
10,000.00
15,000.00
20,000.00
Nifty Healthcare Index
CLOSING PRICE
REPO RATE

20. Conclusion:
If the high inflation sustains, at some stage it will lead to a chain reaction across the
economy, pushing up interest rates and even affecting demand.
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
0.00
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
30,000.00 Nifty Consumer Durables Index
CLOSING PRICE
REPO RATE

21. THANK YOU