A recent report by BofA Securities says that rising commodity prices pose a challenge for the markets. 31 Nifty-50 companies are expected to carry commodity-related risks. Research and broking firms have warned that the full impact of the rise in commodity prices is yet to be seen. Given this, he expects the equity market to consolidate.
According to BofA estimates, the high-debt sectors comprise 57 percent of the sales of raw materials for the Discretionary sector, followed by 36 percent for Materials, 31 percent for Staples, 29 percent for Energy, 28 percent for Industries. , Comprising 27 percent of sales for utilities and 22 percent for the healthcare sector.
The 22 February report, jointly prepared by Amish Shah, Equity Strategist (India) at BofA Securities, said, “So far, the full impact on the companies has not been seen, because they had low-cost raw material, but now We see this as an imminent danger. There is no impact for the finance and IT services sectors.
According to their analysis, steel, cement, crude oil, coal, copper, aluminum, iron ore, palm oil and caustic soda are the major commodities for Nifty-50 companies, whose prices have risen by 75 percent since June 2020.
BofA Securities has said, “Despite this, the market has so far ignored the risk of a sharp rise in commodities, as gross margins for several Nifty stocks (excluding the Staples region) increased during the third quarter of FY 2021. Often the inventory between 17-85 days has helped the price rise of commodities so far. Among major metals, copper prices on LME have crossed the $ 9,000 per tonne level for the first time since September 2011. The expectation of a surge in demand after China’s New Year has led to an increase in copper prices. Three-month copper on LME climbed 3.1 percent to $ 9,187 a tonne, the highest since September 2011. In his latest report to investors, Christopher Wood, global head of equity strategy at Jefferies, wrote, “If oil prices can definitely rise, the same trend can be seen in copper.”