Inflation hedge in India: stocks or bullion

Abstract

At a time of runaway inflation, when nothing seems to contain the pace of its gallop, it might be pertinent to look around for an investment which may shield the value of the investor's money against the devaluing onslaught of inflation gone amuck. In the west common stocks have often been examined as possible hedges against inflation, though other possible hedges such as the bullion have not received the necessary attention. In India however, there is paucity of work done in the very area of inflation hedge itself. This paper therefore empirically investigates common stocks and the bullion as possible inflation hedges in the Indian market. The study regards an asset a hedge against inflation if the rate of increase in its nominal value is greater than the rate of increase in inflation.