Old Bridge Capital Management, which manages assets worth $800 million, expects inflationary pressure on corporates earnings to continue, and for investors to keep away from consumer and consumption-focused companies.

Kenneth Andrade, Founder and CIO of Old Bridge Capital Management, in an interaction on Wednesday said markets have already downgraded earnings of few companies based on the inflationary pressure and investors should look for companies that have not only steady cash flow, but also the ability to pass on the incremental cost to end consumers.

Overlooked manufacturing segments

Going ahead, he said, given the performance-linked incentive schemes and the government focus on boosting exports, some companies in manufacturing that feed into the global supply chain should benefit, particularly as the world’s largest manufacturers run into multiple headwinds and attempt to tap niche manufacturing segments in India that have established global cost leadership.

Valuations and business models in this space have been overlooked as historically, companies in this sector have been non-performers, he said.

India’s signing of free trade agreements will add to inflation in the long run as each country looks to protect its supply chain, but a bit of inflation is always good for generating fresh investments and job creation, he said.

High agri commodity prices

Agriculture facing businesses are facing the brunt of high inflation but have managed to pass on additional costs. Profitability of these companies has hit a new high, he said.

Farmers are not looking at the minimum support price to decide what to grow as most agriculture commodity prices are ruling much above MSP, he added.

With lower debt levels and improved balance sheets, select companies in the agriculture space look attractive given their fair valuation, said Andrade, a veteran with 10 years of asset management experience at IDFC AMC where he managed a corpus of $8 billion.

Newly listed start-ups have done well to establish a business model and generate good cash flow, he said, adding that they have to sustain over a longer period without depending on external funding before commanding proper valuation. Corporates which are dependent on the government for business should benefit from its better financial position and higher spending capacity, he added.