The equity market is still the most popular asset type for growth investing. In times of rising costs, the idea is to invest in companies and industries that are least affected by inflation.
Mercantile Militarism — a scenario in which states focus on controlling commodities and supply networks with the help of a strong military — is now subduing the decades-long trend of liberalisation and globalisation.
Russia-Ukraine war and Pandemic
India has restricted wheat exports in order to feed its massive population and assist neighbouring countries in achieving food security. The global international order is now being balkanized, with states separated into several camps.
Commodities and food are being used as weapons. Russia and Ukraine, the primary wheat suppliers to African nations, are using their positions to gain support. Russia is also using gas and oil supplies as weapons to keep European states under check.
The epidemic, which was followed by the Ukraine War, restricted cross-border flows of goods, capital, and people while increasing digital activity. Soaring commodity prices and rising inflation as a result of reduced import competition point to physical de-globalization.
Implications on India’s Economy
In 2022, foreign institutional investors (FIIs) withdrew a record $20 billion from the Indian equity market. India currently has a 13.64 percent weight in the MSCI Emerging Markets index, whereas China has a 30.57 percent weight and Taiwan has a 15.45 percent weight.
According to Abhiram Eleswarapu, head of equities at BNP Paribas India, current profits growth in India is predominantly driven by cyclical firms such as metals and mining, while high-growth sectors such as consumer durables, consumer staples, and two-wheelers are facing earnings reduction.
“India is expected to grow at a nominal rate of 11-12 percent over the next five years,” says Yogesh Kalwani, head of investment at InCred Wealth. “Does any other country in the globe have a 10% growth rate over the next five years?” “There aren’t many alternatives,” he continues.
The goal is to invest in firms or industries that are not affected by inflation. Service industries like IT will be mostly immune to the commodity crises, while pharma and healthcare are unlikely to be hurt by discretionary expenditure cuts.
Sectors closely associated with the government’s goal, such as defence, will see increased business, while commodity and chemical-based sectors, such as petroleum, coal, and sugar, would benefit from growing commodity prices.
Investors should concentrate on banking and finance because the industry has traditionally underperformed, and bank net interest margins normally expand during an inflationary time, according to Relli of HDFC securities.
Current account, savings account (CASA) deposits account for around 45 percent of banks’ liabilities. Banks pay no interest on current accounts and only 4% on savings accounts.