The Covid-19 attack in early 2020 meant the loss of life and livelihoods and continues to have dramatic results. The main impact was in the form of distortions of supply chains.By the beginning of the 21st century, global trade was booming. Nations focus on outsourcing jobs while maintaining high value economic activities.
Such an approach creates a complex dependence on all chains offered around the world. The arrival of Covid-19-related land closures has begun to pierce the wheels of global trade as jobs halt.Investing in a changing economy is a challenge, especially in times of inflation, when prices for goods and services increase. For convenience, the whole group of companies can be divided into two buckets: 1. Focused companies that supply products with others, and 2. Focused companies that buy those goods and make and sell products to consumers.
In the face of inflation, companies in bucket 1 tend to benefit. They see more money for the same product. Like the original producers, their revenue rises faster than their costs. This leads to an increase in profit margins for producers of goods. Their stock performance is directly related to the increase in their profit margins.On the other hand, companies that focus on spending are on the brink of inflation. They have to pay extra to buy goods. The cost of processing these materials into products does not decrease.Unfortunately, these companies are not able to transfer all the increased costs to their customers immediately. Expansion of demand plays an important role. India is still a developing market and a large portion of the daily income earners. In such a market, it is difficult for companies to transfer costs quickly.
Winning categories
About 20 percent of India’s GDP comes from agriculture and integrated activities. About 25 percent comes from industry (mining, manufacturing, utilities, construction). The remaining 55 percent comes from resources (tourism and tourism, financial services, housing, public administration and defense).Mining companies are the main beneficiaries of inflation. Over the past two years, many companies associated with the industry have performed remarkably well.
Manufacturing companies and the entire construction industry are often on the brink of inflation. This is because they are not able to increase costs quickly.Companies in the service industry do not have a direct relationship with inflation. However, banking companies and financial services often benefit from inflation. As inflationary winds begin to blow, major banks are ready to raise interest rates. In those times, bank interest rates tend to grow and profits go up.
Manufacturers of goods
Manufacturers of goods benefit most in times of inflation. When inflation is imminent, investing in real estate companies makes a lot of sense. How does one ensure that the momentum in these stocks will continue?Duplication of price-to-earnings (PE) for asset companies begins to look more attractive in times of inflation. This is because the average denominator (earnings per share) rises sharply, making the resulting PE ratio look attractive.
Here is the problem. It is difficult to predict the profitability of asset companies. Trying to predict earnings per share is like predicting inflation, a complex economic downturn.Another good indicator of stock prices is their performance. Assets move faster and because of this, their margin profile also rotates.In good times (inflation), the performance rates of cyclical companies increase. It is counterproductive to sell your property at high prices. Greed often takes over and the investors ‘demands’ more from the traveling companies.There is no clear answer as to when one should sell cyclicals, but planning a margin trajectory should provide some tips. There is a good chance that trading at the top of the margin makes the right decision.
Usage: Long-term winner
India is a consumer-centered economy. Much of India’s GDP comes from the use of goods and services. In such an economy, inflation often strikes hard because we depend on imports to supply the bulk of industrial demand.In times of inflation, consumer purchasing power is declining and after that, the demand for consumer choice products decreases. For this reason, consumer-focused companies often struggle to perform well in times of inflation. Their costs rise faster than income growth.
Consumer-focused companies are easier to analyze because the supply chain cycles are stable. The impact of inflation on these companies is negative, but often changing.Effective procurement companies eventually succeed in transferring their rising costs to consumers (although this may cause significant damage during major economic crises such as Nepal, Sri Lanka and Pakistan).In summary, if one has the ability to understand the demand and supply of a company that focuses on asset, one can surpass many investors by investing in and exiting goods / bicycle companies “at the right time.”However, for those who may not be new, staying with companies focused on purchasing is appealing. There will certainly be some pain in companies that focus on buying in times of inflation. But for those who believe in India’s growth, staying with stable, purchasing-focused companies should work well for a portfolio over time.
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