Inflation may dent earnings, look for companies with pricing power: Pramod Gubbi

The Indian market will likely be affected by a global slowdown but India continues to stand out against its emerging market peers, as the economy is largely domestic-driven, Pramod Gubbi of Marcellus Investment Managers has said.

“Among all other emerging markets, relatively speaking, we do stand out because fortunately or unfortunately we don’t have a thriving export sector compared to our other emerging market peers,” the Marcellus Investment founder said in an interview to CNBC-TV18.

Some analysts are of the view that Indian stock markets may have decoupled from emerging market peers. While MSCI Emerging Markets Index fell about 21.8 percent in the 12 months to August 31, MSCI India Index declined just 3.17 percent.

Similarly, while the EM index shed 6.49 percent in the three months ended August, MSCI India gained 6.14 percent.

Also read: Kotak sees chinks in ‘Indian market is decoupled’ theory amid subpar economic recovery

“The big theme, I would say, is if inflation were to stay entrenched for a while, investors need to be looking at businesses which have extremely high pricing power…otherwise inflation will drive down earnings,” he said.

India would have good visibility for the next decade, which boded well for sectors such as infrastructure and financial markets.

“The structural correction of the capital is a big boost for the Indian economy which makes us less reliant on the external world,” he said.

Auto stocks were bound for recovery in the near term despite several supply-side problems and the COVID challenge. Though semi-conductor were still in short supply, the shortage had eased to an extent, he said.

“Some correction on the raw material front has also helped margins (in auto stocks) come back somewhat, so we should see a decent cycle at least for the next two to three years as far as demand for autos is concerned,” Gubbi said.

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The underlying economic recovery could drive industrial recovery, which, in turn, would boost sales of commercial vehicles, he said.

Gubbi wasn’t too worried about the firm’s investment in GMM Pfaudler, which has been hammered recently. “We are not so perturbed by short-term stock price movement as much as we would look at fundamentals and fundamentals continue to be reported very strongly.”