Full impact of inflation not yet in earnings; may reflect next quarter, warns Unmesh Sharma
HDFC Securities’ Unmesh Sharma said the full earnings impact of inflation may not show up until the June quarter, as oil-price shocks can shrink consumer wallets and gradually erode pricing power. He cited monsoon uncertainty and the Russia-Ukraine commodity inflation as key risks that could lead to single-digit earnings growth. HDFC Securities cut its full-year earnings growth estimate to 10–11% from 13–14% earlier.
How this was made
The 30-second read
Why it matters
If inflation’s earnings impact arrives in Q2 (ending June), markets may reprice earnings growth downward and compress valuation support—unless investors find pockets of resilience (banks) or valuation support (IT, power).
Market read
This is a macro-to-sector positioning brief: inflation lag raises downside risk for earnings growth, while the strategist’s portfolio tilts toward power/infra, large banks, and a valuation-led IT upgrade.
What to watch
The article is based on an institutional strategist’s expectations; it does not quantify company-level sensitivity to oil/monsoon, so dispersion across sectors/companies could be larger than implied.
Background
HDFC Securities’ head of institutional equities argues the full inflation hit is not yet in corporate earnings and may emerge in the June quarter, with monsoon and the Russia-Ukraine commodity shock as key uncertainties.
Ticker impact
Power Grid is cited as the preferred direct power exposure for the infrastructure/power bucket overweight.
Relative bid possible if investors treat power as a valuation/defensive rotation while awaiting inflation impact in June quarter.
Recommendation is sector-based with no new company event; also ticker mapping is uncertain because the article says “Power Grid” without specifying the exact listed entity.
SBI is listed among large banks favored for earnings visibility and relative insulation from inflation pressures.
Potential relative support for SBI vs cyclicals if markets reprice inflation-to-earnings lag risk.
Macro read-across is explicit (inflation impact not yet in earnings; banks insulated), but there is no SBI-specific datapoint beyond the analyst’s preference.
Infosys is cited as trading below 20x earnings, supporting the IT sector upgrade to equal weight.
Mild positive bias vs IT peers if the market follows the analyst’s “build on dips” guidance.
No fresh INFY event is described; the impact is indirect via sector allocation and valuation framing.
Market effects
Inflation-to-earnings lag narrative pressures consumer/pricing-power assumptions while supporting defensive/valuation-led rotations into power, infra, and large banks; IT is upgraded on valuation despite AI/global spending concerns.
India-focused macro read-through (monsoon forecast + Ukraine-driven commodity inflation) may drive broad earnings-expectation repricing across Indian equities.
Ukraine/commodity inflation linkage highlights global risk transmission into India’s earnings outlook via oil-price shocks.
Counterpoint
If monsoon normalizes and oil shock fades, the “single-digit earnings growth” scenario may not materialize, making the defensive rotation overdone.
Key entities
- analystUnmesh Sharma
HDFC Securities institutional equities head warning inflation impact may surface in the June quarter; revises full-year earnings growth estimate to 10–11%.
