I understand the natural gas prices in Europe may not have a direct correlation with what we are seeing in India but India also imports LNG and we have been hearing now and you can see it on the Indian energy exchange as well how IOC for example is buying cargo for $18 to $20 unit. Things on ground are moving up. How to play this in the stock markets then?
You are right. I think the biggest risk factor in this stock market is inflation. The central bankers are betting that these are just temporary spikes which we are seeing in basic chemicals and minerals including oil and eventually once supply chains settle down and once pent-up demand globally is over and done with, we will see a correction in energy prices and basic chemicals and eventually inflation will dissipate and that is the real big challenge or risk factor at this point of time.
My investor perspective is we can go for companies which benefit from higher commodity prices and I would not like to play the energy companies so much but more of the metals or may be cement, aluminium.
Structural changes are taking place within those sectors because of what is happening in China and how they are curbing consumption because of pollution over there. So my way to play the rising commodity prices will be buy some of the metals ferrous as well as non-ferrous, some of the speciality chemical companies, even organic chemical companies and may be to an extent cement because they would have the pricing power, instead of going in for where there is a lot of cyclicality in earnings and no volume growth going ahead.
Read: Animal spirits unleashed in economy; next few quarters would be fantastic
Read: Don’t even think of booking profit in IT stocks, stay invested
That will be the strategy to play the inflation which is underway globally and in India.
On the sudden runup in Bosch
Earlier, the stock was a big underperformer and that is because of the issues which were there with the commercial vehicle industry, the shift to BS-VI and the overall slowdown in the sector had impacted sales. But now, all the problems are well behind Bosch and they have very large orders from existing OEM players because of the shift to BS-VI and we are seeing a significant jump taking place in the commercial vehicle production and that certainly benefits Bosch Industries.
Also, Bosch is trying to integrate backwards and trying to manufacture the components which they were importing earlier so that over the next couple of years, one could expect improvement in the margins as well. And last but not the least, the Bosch management has categorically stated that all their ventures and all their actions and expansions on the electric vehicles front will be done through Bosch India. That provides comfort to investors that the benefits of the new technologies developed for the EV industry will come to Bosch India and there will be a sustenance of earnings even when the industry transitions from IC engines to electric vehicles.
But within the commercial vehicle space, Bosch’s position remains extremely strong. They have a good pricing power as well and with volumes looking up. One can expect very good earnings after several quarters of disappointment.
