I got the following comment from ranjit and gave the response below
Today RBI has increased repo & CRR again. Please can you give me your historical perspective on these high interest rates and also what would you do in such situations, would you move into FD's for some time or would you stay invested fully.
my personal experience with interest rates has been from 95 onwards when i saw the rates move to 15% and since then it has been a downwards movement.my stock market positions are not based entirely on interest rates (at least not in the past). if i find a compelling buy, i go ahead with it if the expected returns are good.since 2003 i have moved into floating rate funds and plan to continue . floating rate funds are more tax efficient than FD's and far more liquid , although absolute returns are less
In addition I plan to do the following
1. continue with a laddered approach to fixed deposit investing. What I mean by laddered approach is that I would be investing in FD’s over the next few months across the most attractive maturities. Currently the 1yr+16 day duration seems to be most attractive to me (the 2yr + 16 days gives 0.25 % more , but is not attractive for the extra duration). In addition, I do not plan to put all my funds into FD’s as one go as I do not have an idea how interest rates will move in the next 6 months. I expect them to stay as is or harden a bit, but frankly your guess is as good as mine. So my fixed income investing will be spaced out over the next few months.
2. Continue with floating rate funds which are more tax efficient than FD’s and far more liquid. The absolute returns are low, but they can serve as a good place to park extra funds
3.The bar for the stock market investing is now higher. I generally use a discount rate of 11-13% . I do not plan to revise it.
4. FD’s and fixed income mutual funds have now started to become a viable alternative to investing in index funds. I am not too keen on the index till the index drops by another 20% or remains flat while earnings catch up.
5. Finally, bad time to take any kind of loans – housing or otherwise.
See here for an earlier post on the same topic