Post COVID Economic OuTLOOK

In the current environment, the world over, we are in a major inflationary phase. Prices of commodities, raw materials, wages are all spiraling upwards, driven by a combination of 1) excess liquidity, 2) pent-up demand that's exceeding supply, and 3) upward recalibration of future investments by companies and people alike (as the economies open up).

This has meant that companies, across sectors ranging from IT & ITES to Manufacturing to Shipping, are seeing a duality of a robust demand pipeline but with pressure on margins. The latter, of course, is driven by inability to pass on all price increase to customers, especially existing customers. But companies aren't complaining as they see growth back on their books after almost 12-18 months of havoc.

While FY2021-22 has been a year of solid financial performance for most sectors, FY2022-23 is where we will start to see visible impact on margins albeit with continued revenue growth. In the next 12-18 months, as demand and supply balance out, the supply side inflation with ease out. Companies that are able to bear through this period will come out much stronger, capturing greater market share, better valuations, and healthier margins. Though, not all small and mid sized companies will make it through. Large companies, with deep pockets, are actively acquiring smaller and mid sized players that are tempted to cash out as they see attractive valuations and high margin pressure. This will lead to higher price distortion by these service and product companies alike, once the dust settles.