There has been a leadership change in indices and a large part of commodities and debt is now contributing to the profitability of indices, said Kenneth Andrade, CIO, Old Bridge Capital Management, in an interview with ET Now.
On being asked why the indices are near all-time high when the crude oil prices are elevated, inflation is high and there is an ongoing war between Russia and Ukraine, Andrade said the indices may not have too much pressure on the downside or on the upside because over a narrow period of time, the shift in the leadership will take place and towards the end of the decade, we will have new components taking indices forward.
Andrade further said commodity prices are high because of the supply disruption and also because governments want to break the supply chain for rebuilding their entire economies.
He believes commodity prices and overall inflation may remain high and any company that benefits from these scenarios will lead the indices and the market for the better part of 2022 to 2030.
Andrade pointed out GST collections have touched record levels because of higher inflation as commodities prices have gone up.
Andrade said investors should keep inflation in mind while structuring their portfolio and since government and commodity companies are the biggest beneficiaries of inflation and both will be the major spenders in the ongoing cycle, one should adjust one's portfolio accordingly.
Andrade pointed out there is a lot of margin pressure on IT companies but they may make a comeback.
"There is a lot of margin pressure in IT companies. The outlook in terms of the volume growth is fairly okay. It could normalise or the companies could step down a little bit in terms of the outlook," he told ET Now.
"My sense is that IT will come back again. They need a little bit of price hike and over the next year, year and a half, when new contracts come in, we will see most of the pricing taking place out there. So I am not too worried about IT at least in the longer term," he added.
He also added that consumer and consumption-related companies are not best bets during times of high inflation as higher input costs will exert pressure n their margins while static demand will keep their growth curtailed.
"For consumer businesses, demand will go slow and margin pressures will be quite consistent over the decade; also the competitive intensity will be high. I will refrain from bottom picking. One could probably have most of these trading but I have seen them correct sideways for long lengths of time," said Andrade.