• By Elite Wealth
  • / March 31, 2022
  • / Article

As we are entering a new financial year on a series of adverse global development of Russia invading Ukraine, Federal Reserve has already started raising interest rate after three year and have started taking of reducing their balance sheet as Annual inflation rate in the US accelerated to 7.9% in February of 2022, the highest since January of 1982.The Ukraine Russia war has further deteriorated the situation as oil prices has almost touched $140 per barrel, which is having a contingent  effects on all over the world inflation. Commodities weather hard or soft all are putting pressure on inflation as Russia being a large exporter of commodities is not ready to back off from this war. Gas Prices in Europe has almost tripled from last year.US was desperate for 2% inflation for the last decade, even a two trillion Quantitative Easing was not to inflated price in United States, with the onset of covid central bank all over the world started printing money which led to high demand for products, and because of covid restriction all over the world there were supply side issue which led to high inflation all round the world, as it is said “printing money is a one night phenomena but building capacities takes years”.

In India Being a net Importer of Oil and commodities is putting pressure on India and corporate India. In December Quarter itself Corporates indicated inflation was eating into profit margins and there will be sustained pressure of Margin going forward, as inflation pressure has exaggerated further, large corporates of India be it HUL, Ultratech, Maruti Suzuki all being market leader in their segment lost Margin when compared to last year because of very high material cost. HUL in its latest Investor Meet said that they further expects to see further QoQ inflation in 4QFY22 and thus margins are likely to remain under pressure. Company is constantly raising prices to combat inflation, In Feb’22/Mar’22, the company announced prices hikes across its portfolio of products by 3-14% in multiple tranches.HUL Management said this product cost is finally hurting demand as people are choosing smaller packs. All major Autos Companies in India has raised prices 2-3 times in last six months management still guide that they still losing margin because of high inflation in metal price which forms 75% of their total cost. All major Manufacturing companies is facing Material pressure be it Paints, Capital Goods, Chemical, Realty, or other Manufacturing companies.

In India Private consumption is also weak, credit offtake has not picked up as expected that why companies are not able to pass on high material expenses to customer ,which can be seen in CPI and WPI divergence, as companies are not able to pass on whole inflation cost to their customer and are taking hit on their margins.

FPI are aggressively cutting their exposure to emerging market and risky assets because Federal reserve has indicated it will raise interest rate to combat inflationary pressure and every central bank except china and Japan are adjusting their stance, Reserve Bank of India has to soon adjust their stance as high import bill is going to put pressure on Indian Rupee, and if the market got the perception that RBI is left behind the curve it can create financial turmoil in India. As it is said that one person loss is other person gain, so there are few sectors which are getting benefited because of high inflation be it metal sector, Upstream Oil and Gas companies, mining Companies. Service Sector is more or less immune to high inflation other than wage hike they can manage their cost. First Half of FY23 is going to be tough for manufacturing sector as there will be margin pressure if this war continues.