Markets are not prepared for a spike in inflation, sub-par monsoon

The Indian markets are among the top performers in the emerging market pack thus far in calendar year 2018 (CY18), with the S&P BSE Sensex and the Nifty50 rallying 9.5 per cent and 7 per cent.

A sub-par monsoon and a possible rise in inflation may prove to be a double whammy for the stock markets over the next few months. Most analysts believe the markets are not factoring in this possibility yet.

While reviewing the monetary policy, the Reserve Bank of India (RBI) hiked interest rates for the second consecutive time and cited a spike in inflation as one of key risks going ahead and expects it to touch 5 per cent in first quarter of financial year 2019-20 (Q1FY20).

Most analysts agree with the central bank's stand. Dhananjay Sinha, head of institutional