The recent rise in commodity prices has started hurting a lot of companies. But will this put pressure on the market and market estimates?
GV Giri, Head of Research at IIFL Institutional Equities believes that price increase in commodities can be passed on. “The margin story for FY22 as it plays out will depend on the outlook for commodities. Our outlook is that commodities will stay strong and if the economy shows sufficient strength, especially in consumption, then some of the price increases can be passed on,” he said in an interview to CNBC-TV18.
According to Giri, categories like electricals, televisions, white goods could see sharp price increases. However, sectors like auto, the requisite price hike may be only 3-7 percent.
Giri believes that FMCG companies might be able to weather the input price inflation. However, hotel and multiplexes should be able to absorb costs once revenue improves, he said.
Dhananjay Sinha, Director & Head Institutional Research of Systematix Group said that commodity price rise leads to better revenue and improved earnings.
“Typically rising commodity prices is a function of better growth, especially on the demand side. The rise in commodity prices, input cost essentially is a derivative of that. So, in the earlier phase of recovery, when commodity prices move up from a steep decline, it is on the back of better growth and hence you see after a steep decline during deflation period, you have an upgrade that you see. So that is a very natural thing that happens in every cycle,” he said.
Sinha said that instead of focusing on how commodities have risen from the bottom, one must look at how the topline growth rise along with it.
For entire discussion, watch video.