MUMBAI: At a 17 -month high of 6.9%, retail price inflation has spooked small investors who believe tighter monetary policy actions could hamper the two-year market rally, but market maven Kenneth Andrade, CIO, Old Bridge Capital Management, sees opportunity even amid a rising inflationary environment.
He believes the leadership mantle would shift over the next few years from consumer-driven businesses like consumer-focused banks and NBFCs to companies with strong cash flows in the manufacturing, external and commodity businesses, among others.
This is because supply-led inflation has pushed up the prices of materials like ferrous and non-ferrous metals, chemicals, energy, etc, improving their cash flows and helping them to deleverage. These firms will be able to raise their capex and improve capacity utilisation to meet the “demand which is chasing supply,” explained Andrade, whose firm offers investors portfolio management services.
According to Andrade, the other beneficiary of the rising inflation is government, whose tax collections have soared due to higher prices and are thus in a better position to spend.
Therefore, the firms that receive orders for developmental work from the government will be gainers, apart from those who export items like iron, steel, aluminum, foods, etc.