As per the research firm Bank of America Securities (BofA), 46% of the free-floated weight marketed cap in the Nifty 50 that is around 31 companies are facing serious issues due to the skyrocketing prices of commodities. The exposure to commodity risk is greater than that of last June by almost 75%. There is also a fear of markets consolidating. The ones at most risk are mostly discretionary such as materials, staples, energy, industrial sectors in their respective order of riskiness. The report says that service sectors like financials, IT, and Telecom which form 54% of free float weighted capital market cap in Nifty have no exposure at all to commodities. It also goes on to say that 6% has limited exposure and the remaining 40% of the market cap has high exposure. Raw materials form 57% of the sales of Discretionary sectors of the high exposure category followed by 36% of the sales for Materials, 31% for staples, 29% for energy, 28% for industrials, 27% for utilities, and finally 22% of the sales of the health care sector.
Inventories that range from 17-85 days are said to be the factor acting as a cushion for the stock market and have prevented the spike from actually playing out. But the prices announced by consumer durables and auto firms might have vanished that protection. The key commodities that are relevant for Nifty are steel, cement, crude, coal, copper, aluminum, iron ore, palm oil, and caustic soda according to the study. The prices of these commodities have gone up by at least 75% since June 2020.
Nifty is short of 15,000 that is the year-end target of the index as per Bank of America. The analysts believe that owing to the rise in bond yields and potentials lockdowns in many places, broad-based market rally s mostly unlikely.