In January 2022, with Covid-19 cases receding, the world seemed to be heading towards a phase of sustained growth and predictable market conditions. In contrast, the world is facing high single-digit to double-digit inflation.
As inflation represents the macroeconomic parameter, the country’s growth will be impacted owing to rising costs. The stock market, a representative of the country’s economy, is undoubtedly going to be a casualty. Companies listed on the bourses will be under pressure to sustain the profitability of the last 2years.
So, how did we arrive at this juncture?
This needs us to visit two possible causes:
- Covid-19 which supposedly started in early 2020 has disrupted the global supply chain & also led to semiconductor shortage
- Ukraine-Russia War that started in Feb 2022 has led to an increase in the commodity prices like crude oil, wheat, coal, etc.
In light of this, it is an interesting thought experiment to evaluate
Can listed companies make money for themselves and their shareholders?
Read on to know how it can be possible
In the current situation, despite the gloomy picture, there are islands of comfort that will sustain and grow. The reason is owing to their
- Product Expertise
- Market Positioning
- Lean Operation
- Time Tested Management
- Ability to Innovate
Let us look at a few areas that are relatively immune to this rise in prices and supply shocks
- Pharma – DRL, Sun Pharma, Sanofi, etc.
- Material Extraction Companies – NALCO, HINDALCO, Vedanta, NMDC, etc.
- IT Product Companies – KPIT
- Banking – HDFC Bank, Axis Bank, ICICI Bank, SBI, etc.
- Crude Oil Explorers & Refiners – ONGC, OIL, Reliance, BPCL, HPCL, IOCL, etc.
Here, I have not included a few popular themes like IT Services(TCS, Infosys), Chemical Companies, Auto Makers, or Ancillaries. The reason for the same is that these areas will find it difficult to protect their margins i.e. owing to competition, raw material cost, or inability to pass the rise to the end-user.
Hope this helps