The Bank of Japan has sufficient room to accelerate its rate hike cycle as rising producer prices, strong wage growth and growing signs of cost pressures being passed on to consumers point to stronger underlying inflation, ICICI Bank Research said in a report.

The report said the latest inflation data remained relatively benign, but government subsidies have helped contain the impact of higher energy prices on consumers, potentially masking underlying price pressures.

“While inflationary pressures have remained benign in the August CPI print, inflation expectations are continuing to rise,” ICICI Bank Research said, citing rising producer prices and the beginning of a wage-price spiral.

Headline consumer inflation and core inflation, excluding fresh food and energy, remained at 1.9 per cent year-on-year in August, below the Bank of Japan’s 2 per cent target. However, producer price inflation rose 7.6 per cent in August, while goods inflation increased 2.6 per cent, reflecting higher imported costs amid yen depreciation.

The report said the strong wage trend could further reinforce inflation expectations. Japanese nominal wage growth has averaged 3.5 per cent in 2026, while real wages have also recorded positive gains.

It said the BoJ’s policy guidance remains focused on price stability and that Governor Ueda’s comments indicated concerns about the central bank falling behind the curve on inflation. Ueda said the BoJ wanted to “avoid a situation like that in the US and Europe” during the 2022 period of high inflation.
At the same time, the report said higher energy prices are acting as a drag on Japanese growth. The economy is nevertheless expected to remain supported by AI-related demand, rising corporate profits and resilient consumption, with growth expected to pick up if crude oil prices ease.The report expects another 25 basis point rate hike in 2026, followed by at least one additional hike in 2027, taking the policy rate to 1.75 per cent. It said the BoJ would continue to monitor the impact of the West Asian conflict, AI-related demand and foreign exchange developments.

Despite the policy tightening, the yen’s outlook remains weak, with the report expecting USD/JPY to trade in the 157-161 range in the near term and continue to depreciate over the medium term.

Warren Buffett’s departure from the chairman’s office at Berkshire Hathaway marks the next step in a transition that has been decades in the making, with CEO Greg Abel saying the culture and values built by the legendary investor will remain at the heart of the $1.1 trillion conglomerate.

“Warren’s impact on Berkshire and its owners is without parallel in the history of American business,” Abel said on behalf of the entire Berkshire Board of Directors. “The culture Warren built and the values he championed will remain at the heart of Berkshire, and Howard will be their guardian.”

Abel also expressed the board’s gratitude to Howard Buffett for the “care, discipline, and deep understanding of Berkshire” he will bring to his new role, while thanking Sue Decker for her continued leadership and contributions as Lead Independent Director.

Buffett, 96, is stepping down as chairman of Berkshire Hathaway after more than six decades at the helm of the company. He will become chairman emeritus with immediate effect and will remain a director.

His oldest son, Howard Buffett, will succeed him as chairman, marking another step in Berkshire’s long-planned succession. Howard has been a member of Berkshire’s board since 1993.

What did Warren Buffett say?

In a letter to shareholders, Buffett reflected on his more than 60 years at Berkshire and said he still considers himself fortunate to have what he called the best job in the world.
“Father Time always wins. He has, however, been generous with me,” Buffett said. “Sixty-plus years in, I still have the best job in the world. That is not something many people my age can say, and I have never felt better about what comes next.”Buffett said the timing was right to complete the transition, pointing to Abel’s role in running the company and the decisions he has already been making.

“Part of the reason is Greg. My expectations for him were sky high from the start, and he has exceeded them,” Buffett said. “He has taken hold of the Chief Executive Officer job in every respect. He has been making the decisions that matter for some time now, and I have not had to think twice about any of them.”

Under the new structure, Buffett said Abel would run Berkshire while Howard would be responsible for guarding the company’s culture and values.

“Greg runs the company; Howard will guard its culture and values,” Buffett said, adding that both were “worth more than anything on our balance sheet.”

Buffett described Howard’s role as a long apprenticeship, noting that his son had been a Berkshire director for 33 years. He said Howard had served on the board for longer than Buffett himself had before taking the reins of Berkshire at the age of 34.

“Think of Howard as a policy the shareholders own and hope never to claim against,” Buffett said. “Howard cares deeply about Berkshire, as do all of our Directors.”

Buffett also reflected on Berkshire’s shareholders, saying the company had been fortunate to attract owners who think in decades rather than quarters. “From the beginning, Charlie and I looked for owners who thought in decades rather than quarters, and we were fortunate to find a great many of you,” he said.

As he moves into the chairman emeritus role, Buffett said he remains confident about Berkshire’s future and will continue as a shareholder. “The company is in excellent hands, and I look forward to remaining a shareholder alongside you.”

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

Before choosing a mutual fund scheme, investors often look at its past performance. But have you ever wondered why mutual fund returns are expressed using different terms such as CAGR, IRR and XIRR? ET Mutual Funds explains these commonly used return measures in simple terms and shows first-time investors when and how each one should be calculated.

Compounded Annual Growth Rate (CAGR)

CAGR calculates the annual growth rate of an investment over a particular period of time. This measure is the most common tool used to measure/calculate returns generated by a mutual fund scheme. It shows the average annual return delivered by a fund over a specific period of time, assuming that the returns are compounded every year.
For example, if you invest in a mutual fund scheme for five years, the CAGR would depict the average rate of return that the scheme has yielded every year for the past five years. With the help of a CAGR, one will be able to find out the compounded annual growth or decline of the mutual fund investments.

Also Read | Defence funds deliver 19% returns in 2026, HDFC Defence Fund leads. Should investors chase the rally or stay cautious?

This metric is particularly useful for long-term investments. It is mostly used to assess lumpsum investments. The formula for calculating CAGR is: =(end value/beginning value) ^ (1/number of years) -1.

End value is the amount of money one will have after the period of investment,
Beginning value is the amount of money one make investment withNumber of years is the total number of years that have passed

Suppose an investor invested Rs 1.20 lakh in a mutual fund scheme. The investment grows to Rs 1.80 lakh after five years. CAGR will be = {(1,80,000 / 1,20,000) ^ (1 / 5)} -1 = 8.45%

The CAGR will be 8.45%, which means a lumpsum investment of Rs 1.20 lakh needs to grow at a rate of 8.45% every year for a period of five years to grow to Rs 1.80 lakh in the end.

Extended Internal Rate of Return (XIRR)

This measure calculates annualised returns for investments with cash flows at irregular intervals. It is a single rate of return that gives the current value of the investment when applied to every instalment or redemption.

If you are investing through SIP mode, calculating XIRR will be the best way. This method is useful with different purchase prices and instalment periods. This method takes into account the timing of cash flows (inflows/outflows).

Here is how to calculate XIRR for your SIP portfolio/ investments.

Step 1: In first column add your date of investment

Step 2: In next column enter all your investment transactions

In this step, add all your investment transactions. Each transaction will be denoted with a minus sign (-); i.e. all outflows like investments and purchases will be marked negative. All inflows like withdrawals and redemptions will be marked positive.

Also Read | Capitalmind Flexi Cap Fund adds Divi’s Laboratories, Bajaj Auto and 3 other stocks in August

Step 3: In this step mention the current value of your investment and the date of redemption.

Step 4: In this step use the XIRR function in excel. XIRR = (investment amount, date)

Internal rate of Return

This metric is used to assess investment profitability. This method considers the changing value of money over time and acts as a special discount rate. In this method, cash flows are discounted at a certain rate based on when the cash flows happen to know the present value of investment.

An investor can use IRR to calculate returns of their SIP, SWP, lumpsum investments with multiple cash flows.

Suppose you make an initial investment of Rs 1,000 and then every year make investments of different amount

Step 1: Enter dates in one column and investment amount is next column

One should make sure that your cash flow has at least one negative and one positive value.

Also Read | Want Rs 1 crore for your child’s education in 18 years? See how a Rs 20,000 monthly SIP can help

Step 2: Use the IRR formula to calculate the internal rate of return for a series of cash flows that occur at irregular intervals

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

If you have any mutual fund queries, message ET Mutual Funds on Facebook/Twitter. We will get them answered by our panel of experts. Do share your questions at ETMFqueries@timesinternet.in along with your age, risk profile, and Twitter handle.

This article was written by

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Indian equities have been showing an interesting divergence—midcap and smallcap indices are at fresh record highs, even as the broader market remains in consolidation mode.

Stronger earnings momentum and steady domestic flows have supported SMIDs, but rising valuations are making stock selection and valuation discipline increasingly important.

Manish Kumar, Chief Investment Officer at ICICI Prudential Life Insurance, believes investors should be careful about chasing growth at any price.

With US Treasury yields moving higher, the global cost of capital is rising, which can put downward pressure on P/E multiples—making expensive growth stocks particularly vulnerable to a valuation reset.

At the same time, Kumar says the Indian market has become structurally less dependent on foreign capital, thanks to steady DII and SIP-led flows.

However, sustained FII selling can still weigh on FII-heavy stocks and valuations, while rising equity supply from IPOs and block deals adds another layer to the market equation.
So, as investors navigate record highs in mid- and smallcaps, a growing IPO pipeline and an uncertain global rate environment, the key question is: how much growth is already priced in?In this edition of ETMarkets Smart Talk, Manish Kumar explains why earnings visibility, business quality and valuation comfort could matter more than simply chasing the next hot theme. Edited Excerpts –

Q) The headline story is interesting: Midcap and smallcap indices are at fresh record highs, but the broader market has been consolidating for weeks. Are we looking at a healthy rotation beneath the surface or growing complacency?

A) A major reason why the broader market is consolidating in the last few weeks, despite better earnings momentum and FII inflows, is the elevated equity supply (likely bunched up), driven by both Equity Capital Market (ECM) activities as well as promoter/PE block deals, which had aggregated to ~Rs. 1tn in the month of August vs. institutional inflows of just ~Rs. 0.7tn (~Rs. 0.5tn DIIs, ~Rs. 0.2tn FIIs) [Source: Axis Research].

Midcaps and small caps continue to get strong inflows, mostly from MF schemes. Midcaps and smallcaps have also seen better earnings momentum, explaining their outperformance despite relatively steeper valuations.

Q) The biggest risk with record highs is that investors confuse momentum with quality. Are we seeing that happen again in parts of the mid- and smallcap universe?

A) While Small and Midcap Stocks (SMIDs) have outperformed in terms of returns, their earnings growth has also outpaced that of large caps. Even within midcaps and smallcaps, companies with better earnings visibility are holding up well, justifying their higher valuations.

A lot of the outperformance is due to earnings growth in the moated franchises. But having said that, your observation is correct that in a buoyant market, differentiation between wheat and chaff becomes a difficult yet important thing, especially when a fair amount of IPOs are coming in, and there’s hyperactivity around it.

Q) Are we entering another phase where investors are buying anything that is remotely linked to capex, defence, manufacturing, power or AI?

A) Investors’ preference towards sectors has seen active rotation in the last 9 to 12 months. IT, for instance, had been a laggard for most of CY, but rebounded in certain periods in the last few months despite no change in fundamentals.

Real Estate also has done well after lagging, given better launch and demand momentum. Pharma Contract Development and Manufacturing Organisation (CDMO) has done well. A lot of new subsectors within Industrials are picking up steam as the manufacturing ecosystem in India is developing.

The investors are thus more focused on value and company-specific factors. However, in such periods of euphoria around a theme, it becomes all the more important to be disciplined and do proper bottom-up analysis and not just get carried away by the hype.

Q) Can domestic liquidity permanently offset sustained FII selling, or are we underestimating the influence foreign investors still have on valuations and sentiment?

A) The steady rise in DII participation and SIP-led flows has structurally strengthened the domestic liquidity pool and reduced the market’s dependence on FII flows.

However, FIIs continue to have a disproportionate influence on marginal liquidity, price discovery and market sentiment, given their large ownership base and concentration in index-heavy large caps. Despite a sharp FII exodus, FIIs still own ~16-17% of Nifty-500.

Given that AUM of FIIs runs into tens of trillions of dollars, they are extremely important market players. Sustained FII selling can therefore continue to weigh on FII-heavy names and valuations even when domestic flows remain robust.

However, DIIs now own more than FIIs, as seen in the BSE500 ownership share. DIIs now lead FIIs in ownership, for the first time ever. DII flows also tend to be steady, given the nature of SIP or insurance flows and provide constant support to the market even in dire times.

Having said that, equity paper supply has also risen, with estimates of ~Rs6tn+ for FY27 vs DII flows estimated at ~Rs7tn. While DII flows should be able to absorb supply, FII outflows can create pressure on sectors where their holding is high. Thus, for markets to rally sustainably, FII inflows are very important.

Q) The market is now watching the US Fed closely. How sensitive is India to the possibility that US rates may remain higher for longer?

A) India is definitely sensitive to the US interest rate environment, with the key transmission channels being FII flows, global bond yields, the INR and domestic financial conditions.

Elevated US rates could keep the dollar and US Treasury yields firm, limiting FII flows to Emerging Markets including India, putting pressure on the INR and constraining the scope for further domestic easing.

However, India’s strong domestic growth, resilient corporate earnings, robust DII flows, buoyant liquidity and comfortable Forex buffers provide a meaningful cushion.

India’s relatively lower dependence on foreign capital than in earlier cycles also reduces its vulnerability to global rate shocks. Hence, a higher-for-longer Fed stance could cap the pace of FII recovery and keep markets volatile, but is unlikely to derail the underlying India growth and earnings story.

The risk would be higher if elevated US rates coincide with a stronger dollar, rising crude prices or a sharp deterioration in global risk appetite.

Q) US Treasury yields have been moving higher, and historically rising yields tend to trigger a risk-off sentiment by making safe US assets more attractive and tightening global liquidity. How serious a risk is this for Indian equities, particularly expensive mid- and smallcaps?

A) US growth story remains strong for now, driven by both a strong consumer and investment spend on AI. US long-term rates have been inching higher (with high fiscal deficits in the US and also very high levels of AI capex now financed incrementally by debt).

However, this is not a systemic risk yet. Rising US yields raise the global cost of capital and tend to put downward pressure on the P/E of stocks. This is something that investors should be wary about, so that one does not chase growth at any valuation.

Q) The IPO pipeline is exploding. Are investors buying businesses—or just buying the hope of listing gains?

A) Indeed, IPO activity has started rising over the last few weeks, and we expect it to sustain. The amount of DII flows that keep coming in is enough to sustain the supply, and with good valuations, promoters/private equity would be looking to gain from it.

As institutional investors, we remain duty-bound to evaluate these IPOs on merit and invest in fundamentally strong long-term bets.

Q) If you are sitting on 30-40% gains in mid- and smallcaps, what should you do today—hold, trim or rotate?

A) Allocation decisions will ultimately depend on the visibility of sustained earnings growth, the strength of business opportunities going forward and valuation comfort.

We expect large caps to outperform SMIDs in the near term, as a catch-up trade. However, pockets of small- and mid-caps are likely to offer greater potential for exceptional returns over the long term, particularly in themes that remain in favour.

Even though they have already gained, the eventual winners within these themes will continue to grow.

Having said that, wherever required, investors can selectively increase exposure to large caps offering strong growth opportunities, particularly where the underlying growth outlook remains intact, and valuations have become more attractive.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)