India Strategy: Will India Benefit from Slowing World Growth? : Bernstein

Venugopal Garre, Bernstein’s latest strategy note, states that over the last month we have seen the sectors affected by commodities like Autos and FMCG experiencing a sharp rebound due to commodity prices having eased. In terms of Autos overall, they are up 16% Year-to-date, while FMCG is up 10%, with high returns, over the previous month.

New Delhi – Venugopal The latest strategy note states that over the last month we have seen the sectors affected by commodities like Autos, and FMCG, seeing a sharp rebound because of commodity prices. In terms of Autos, they are up 16% Year To Date, while FMCG is up 10%, with high returns.

Autos was one of the most successful sectors in this year’s performance. This is an interesting trend as it suggests a new theme to concentrate on sectors that will be able to benefit from a moderated inflation. Venugopal says that India has a net importer. Even after taking into account net service exports, this will have a smaller impact on the world if it slows down, taking down commodities.

Global theory predicts that we will experience a stagflation scenario. This theory assumes that commodity prices continue to rise due to supply constraints and low past investments. Therefore, there is limited impact of rate-related demand side actions.

He adds that India is a relative benefit if policies are implemented, even if growth slows relatively to FY22. The path ahead is not clear and volatility will continue to be a problem. We have a range-bound outlook on the market, but don’t expect a hard landing. Based on their exposure, macro growth, commodities and rates all have an impact on each country.

Strategy for India Venugopal states that sector rotations in a flat market are the normal way to generate returns. Historically, what we consider a rebound in certain sectors affected by commodity costs is one trade without any medium-term view being taken on inflation by investors.

They are also underweight in commodity sectors. Therefore, they upgraded their autos to neutral in January-22, neutral on FMCG, and underweight for non-auto discretionary. These sectors must see further commodity price declines. If they do so, sector trade will shift to the beneficiaries of overall macro recovery, such as Financials and Industrials, which have relative valuations that are attractive.

Nifty has risen nearly 7% since June 2022 lows, at levels of 16500 relative to levels of almost 15200. On a Year-to-date basis, Nifty is down about 5%.

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