11 Nifty cos to rake in commodity rally gains | Economic Times

Mumbai: Who are the clear winners — and relative stragglers — of the global commodities supercycle?Metals, mining, oil & gas companies should gain, but higher output prices of these industries will have a negative impact on user industries — auto, real estate, consumer staples, and durables.Global commodity prices have surged in 2021, with the CRB core commodity index rising 70% year-onyear in April. A weak demand environment makes it difficult for consuming sectors to fully pass on the cost pressure to the end consumer, said analysts.Motilal Oswal Financial Services said that rising commodity prices would benefit 11 companies in the Nifty50 index — Grasim, Shree Cement, UltraTech, Hindalco, JSW Steel, Tata Steel, BPCL, IndianOil, ONGC, Reliance Industries, and Coal India. These companies are expected to gain 5-22% in earnings in FY22 due to commodity inflation. 82961929While these 11 companies contribute 36% of the Nifty estimated profits in FY22, the 13 companies negatively affected would make up 11% of the Nifty FY22 profit pool, showed the study. The IT sector, which constitutes 15% of the Nifty weight, is broadly insulated from commodity inflation.“Metals and upstream oil & gas companies would be the clear beneficiaries of the surge in commodity prices,” said Gautam Duggad, head of research, Motilal Oswal Financial Services. “With the uncertainty in the demand environment, it would be difficult for companies in the auto, consumer staples, and durables sectors to pass on the rise in commodity costs.”The recent spike in the headline inflation in several countries, including in the US, has been led by the steep rise in global commodity prices, including metals, soft commodities, and crude oil prices. The Nifty Metal index has surged 81% in the last six months while Nifty Auto and FMCG indices gained just 19% and 11%, respectively, compared with an 18% rally in the Nifty.Gaurav Dua, head-capital market strategy & investments at Sharekhan, agrees that commodity inflation is good for miners and producers, but it would put cost pressures on commodity consuming sectors like auto, real estate and consumer durables. “Unfortunately, the weak demand environment makes it difficult for consuming sectors to fully pass on the cost pressure to end consumer,” he added.The recent comments of the Chinese policymakers have resulted in some moderation and volatility in commodity prices. But if the high inflation trends continue, it will likely pose a concern for monetary authorities, said analysts.“The uptick in inflation could signal the end of the monetary easing cycle, which has aided the steady decline in funding costs for the system, thus driving healthy margins,” said Duggad of Motilal Oswal.