Should the market be really more worried about risks of inflation

 Should the market be really more worried about risks of inflation (domestic and global), interest rate hikes, bond yields and the US dollar now?Y 

Yes definitely. These are the things that do matter to a large extent. The risks of inflation in India are elevated even after we got the CPI number at 4.29 percent for last month, followed by a ten year high in WPI. The high commodity prices, the weaker Rupee, the high price of oil, are the factors that may cause prices to stay high. While a widespread monsoon and good crops may contain this to some extent, the prices of pulses and protein-rich foods may remain a threat. Sustained high prices may lead to policy changes consistent with the priorities relevant from the stability perspective by the central bank, but any policy change may happen only as growth becomes visible and sustainable. Therefore, the prospects of central bank action towards normalization remain moderate at this point in time but may accelerate as we move into the latter half of the year.

The ten-year benchmark yield in the US has already moved up to 1.65 percent and it is likely moving towards the 2 percent mark soon. US GDP growth for Q1 came in at 6.40 percent, and the CPI for April was at 4.20 percent. Both these aggregates indicate a certain amount of buoyancy, though unemployment is yet to register a significant fall from the 6 percent mark. This is the prognosis of normalization and higher rates in the US, as consistency in these rates becomes more acceptable to policymakers. The US rates are a crucial variable that overseas investors track and base their decisions on. But the fact that India is one of the growth engines for the whole world would present the local market as an attractive avenue for long term investors.