(Bloomberg) -- Indian stocks are an attractive bet because inflation has peaked and this will become evident in price data within a few months, according to a hedge fund backed by KKR & Co.
“We are big on consumer discretionary, led by auto, and industrials -- these industries will immensely benefit when prices fall,” Vaibhav Sanghavi, co-Chief Executive Officer of Avendus Capital Public Markets Alternate Strategies, said in an interview in Mumbai.
Sanghavi, who manages about $750 million in the country's largest long-short fund, cautioned that there may be a bit more volatility ahead, “but when inflation numbers come down, most probably from September, huge inflows will come in.”
India's headline inflation eased to 7.04% in May, below estimates for the first time in four months, after reaching an eight-year high the previous month. A gauge of Indian auto stocks is already performing strongly, having gained 12% in the last three months amid an easing chip shortage, while consumer discretionary and industrial stocks have declined.
Sanghavi expects falling commodity prices and a slew of government actions to help curb inflation, including lower fuel taxes and import levies, and rate hikes from the central bank.
Brent crude, a major component of India's import basket, has fallen more than 12% over the past four weeks.
“At the first sign of inflation easing, foreign investors will start to scramble,” said Sanghavi. “They will have a painful entry.”
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