Pharma And Auto Stocks May Offer Better Inflation Protection

Pharma and select automobile stocks could perform better during periods of rising inflation, according to a report by InCred Equities, which studied the correlation between consumer price inflation (CPI) and sectoral market returns.

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The brokerage said biotech, pharmaceutical, and automotive sectors showed positive correlation with inflation and delivered above-average returns during inflationary phases. The report added that pricing power and export-linked earnings supported performance in these sectors.

Pharma Sector Shows Strong Inflation Correlation

InCred Equities identified the pharmaceutical sector as one of the strongest performers during inflationary periods.

According to the report, Indian pharma companies benefit from pricing flexibility, cost absorption capacity and export revenues linked to foreign markets. The brokerage also noted that rupee depreciation supports export-oriented pharma businesses during periods of rising inflation.

The report named Sun Pharma and Lupin among its preferred pharma picks. It added that companies such as Aurobindo Pharma, Glenmark Pharmaceuticals, and Laurus Labs remain more vulnerable to inflation-linked cost pressures.

Select Auto Companies Preferred

The brokerage said the automotive sector also demonstrated positive CPI correlation, although performance differed across companies. InCred Equities recommended selective exposure within the sector rather than broad-based investments across automobile stocks.

The report identified Eicher Motors and Samvardhana Motherson International as preferred companies due to their pricing strength and global business exposure.

As per the broker, Eicher Motors would benefit by virtue of the premium brand positioning enjoyed by Royal Enfield motorcycles, which will enable price hikes without significantly denting demand.

With respect to Samvardhana Motherson International, the brokerage has pointed out international diversification and contract customers that act as margin shields during periods of inflation.

Other Stocks Mentioned in the Report

Besides, the brokerage firm mentioned Astral, Persistent Systems, Pidilite Industries, and Asian Paints as stocks that perform well in inflationary periods.

However, the report clarified that these companies do not qualify as direct inflation hedges because inflation is not the primary driver of their stock returns.

Energy, Utilities And Realty May Remain Under Pressure

The report stated that energy, utilities, and real estate sectors have historically underperformed during inflationary cycles. According to InCred Equities, government-controlled pricing mechanisms for state-run oil marketing companies limit the ability to pass on higher crude oil costs to consumers. This affects margins when crude prices rise.

The brokerage said companies such as BPCL, HPCL, and IOCL remain exposed to margin pressure during periods of elevated inflation.

The report also noted that rising interest rates during inflationary phases negatively affect real estate and utility companies due to higher borrowing costs and slower demand conditions.

InCred Equities said sector performance during inflationary periods depends largely on pricing power, operating margins, export exposure, and sensitivity to interest rates.