Beating Inflation

Font Size

Print

Feedback

Email

Discuss

Related Articles

Inflation may touch 10% by end MarchInflation up at 0.83% on higher food pricesHoarding drives food inflation by 16.32%Inflation a matter of concern: FM

: Burgeoning inflation. A term which is now as much part of the list of concerns of the biggest corporations as it is of the list of worries of the ordinary individual. Whichever way one looks at it, the impact is clearly deep and devastating (see chart). And for those shelter-seekers of the markets who have burnt their fingers or are simply untested, it has become the biggest worry: will investment in equity be fruitful? If not, are there investment avenues where the principal amount can at least be protected in these tough times?

Amidst such pessimism and concern, it is appropriate to note what the legendary Warren Buffett, in his 1990 chairman's letter to shareholders, had written. “The most common cause of low prices is pessimism- sometimes pervasive, sometimes specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer,” says Buffett. And as seen in the past, it is not just the search for solace that leads one to believe in what the quote implies. The situation is not that bleak as it is seen by many to be. You can invest!

Sift and select

Considering the situation in the markets, there is a need to follow the examine- cull-and-choose format. Advises Tridib Pathak, chief investment officer, Lotus Asset Management Fund, “Investors must look at companies which have better pricing power. Companies which, if they come under pressure, can pass it on to their consumers.” Some fast-moving consumer goods (FMCG) (see chart) are examples of companies which fall in the category of companies which have better pricing power. Also, one of the best aspects associated with such companies is that they are largely debt-free and even if their input costs rise, they can sustain margins primarily due to brand penetration.

There is also a need for digging into the past. A look at the companies, which became instant favourites in the market and lost their sheen for reasons varied and known, would serve as good indicators for the current decision-making process.