An upswing in most commodities over the past few weeks has brought the spotlight back on inflation, which many fear will adversely impact the earnings of India Inc. While the scenario may hold true for the non-Nifty baskets, the Nifty50 index earnings may largely remain unscathed, suggests a report by domestic brokerage Motilal Oswal Financial Services.

The report noted that with the uncertainty in the demand environment, it would be difficult for companies to pass on the rise in commodity costs. "The auto, consumer staples, and durables sectors would be highly impacted in such a scenario," it said. In banking, it said that debt deleveraging by corporates has further impacted credit growth.

As per the Motilal Oswal report, the uptick in inflation could signal the end of the monetary easing cycle, which has aided the steady decline in funding cost for the system, thus driving healthy margins.

However, the adverse impact on auto, consumer, durables margins would be counterbalanced by an earnings uptick in the metals, cement, oil and gas sectors. The IT sector, which constitutes 15 per cent of the Nifty weight, is broadly insulated from commodity inflation.

"Earnings in the non-Nifty, non-commodity basket may be adversely impacted given the weak demand backdrop in the economy due to widespread lockdowns," it said.

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