The rise in commodity prices will impact input costs for most sectors in India. Sonam Srivastava, founder of Wright Research, in an interview to Moneycontrol, said that in view of the fall in earnings, margins will face severe pressure in such an environment. Prices of crude oil, natural gas, metals and agro commodities have risen sharply since Russia’s invasion of Ukraine.
Sonam, a quantitative investment management and trading professional, says that “automobiles, consumer durables, chemicals, fertilizers, FMCG, construction and real estate will remain under pressure due to rise in commodity prices due to the crisis” as the most affected sectors.
Here are the edited excerpts from the conversation with Sonam Srivastava:
After the huge jump in commodity prices, do you expect the first half of the next financial year to be challenging on fundamentals?
Four-week decline in the market broke, all sectors seen in the green mark
Sonam said a sharp rise in commodity prices will have an impact on input costs for most regions of India. The prices of crude oil, natural gas, metals and agri commodities have seen huge gains. Where crude oil will affect downstream oil companies, paint chemicals, aviation and auto sectors. On the other hand, rising metal prices will impact manufacturing, auto builders and other metal consumers. Given the fall in earnings, margins will remain under pressure in such an environment.
After a sharp sell-off across all sectors in the recent turmoil, what are your preferred sectors to bet on?
Commodity prices have peaked somewhat. Therefore, a cautious approach should be adopted in these sectors in future. On the other hand, if the war does not progress, rates will be increased by the US Fed. Next, the banking and financial sector will be the bets in the high rate environment. On the other hand the IT and pharmaceuticals sectors are one to bet on as there is no commodity exposure.
The sectors which will be under maximum pressure include Autos, FMCG, chemicals, industrial, manufacturing.
What are the areas that will benefit or do well and which will be most affected when the Ukraine-Russia war and the sanctions imposed on Russia by the Western world come to a standstill?
Responding to this, Sonam said that the most important effect of the restrictions is seen in the form of commodity price inflation. We have seen oil, manufacturing stocks, metals, sugar sectors turning positive despite volatility. The IT and pharmaceuticals sectors have remained strong due to currency devaluation and foreign exposure. One should invest in shares of companies exporting metal or agro commodities.
While speaking on the most affected sectors, Sonam said that automobile, consumer durables, chemicals, fertilizers, FMCG, construction, and real estate will remain under pressure due to rise in commodity prices due to Russia-Ukraine crisis.
1 lakh invested in this multibagger stock, 61 lakhs in 8 years, have you taken this share?
Do you think this is a bull market correction?
Sonam Srivastan said that there are definitely good days ahead for the market. We are at historically low valuations. At the same time, the geopolitical tension is likely to end. Indian economy is strong. At the same time, despite the setback due to the current situation, good results are expected in the coming quarters. Once the geopolitical situation calms down, we can expect a relief rally.
(Disclaimer: The views and investment advice given on moneycontrol.com are the personal views and opinions of investment experts. Moneycontrol advises users to consult a certified expert before making any investment decision.)
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