Looking across companies and sectors, there seem to be two different forces working together right now.
The first is a set of short-term factors such as inventory gains, restocking, supply shortages and favourable product mix.
The second — and potentially much more important for investors — is the emergence or acceleration of structural tailwinds in areas such as cybersecurity, AI, energy security, defence and EVs.
The important job is to separate companies enjoying one or two good quarters from companies where these developments can create several years of growth.
1. Inventory Gains
Many companies normally carry anywhere from a few weeks to a few months of raw-material inventory.
When oil and other commodity prices suddenly increased, prices of both raw materials and finished products moved higher.
Companies that already had lower-cost inventory sitting on their books could manufacture using that cheaper material while selling finished products at the new, higher market prices.
This can temporarily result in:
Old low-cost inventory → Higher selling prices → Better gross margins → Higher profits
Therefore, part of the strong growth or margin expansion we see this quarter may simply be an inventory gain.
This is important because it may not repeat once the old inventory is consumed.
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2. Weak Rupee + Expensive Imports = Opportunity for Domestic Manufacturers
The depreciation of the rupee, disruption or closure of important sea routes and global supply tightness have made imports more expensive and sometimes less reliable.
When importing becomes expensive, the price difference between an imported product and a locally manufactured product reduces.
Customers therefore have another reason to shift towards domestic suppliers.
The biggest beneficiaries could be companies that are backward integrated, because they manufacture more of their raw materials or intermediate products themselves.
The chain becomes:
Weak rupee + expensive freight + supply disruption → Imports become expensive → Customers reduce imports → Domestic manufacturers gain volumes
And within domestic manufacturers:
Backward-integrated companies can potentially benefit the most.
Unlike inventory gains, this can become a more meaningful tailwind if customers permanently develop domestic suppliers rather than going back to imports once conditions normalise.
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3. Pent-Up Demand + Restocking
When the war initially pushed input prices sharply higher, customers became cautious.
Instead of purchasing normally, many postponed purchases or kept inventories extremely low because nobody wanted to buy large quantities at peak prices.
Once prices started cooling, this delayed demand started returning.
But something else happened simultaneously.
Customers who had been running very low inventories also needed to restock.
So companies can temporarily see three types of demand together:
Normal demand + Previously postponed demand + Restocking demand
This can make underlying demand look exceptionally strong for a few quarters.
Therefore, whenever we see unusually strong volumes, we need to ask:
Is actual end demand growing, or are customers simply rebuilding inventories?
If growth continues even after restocking finishes, that would be a much stronger signal.
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4. Raw-Material Shortages Are Improving Product Mix
Raw-material shortages are normally considered negative.
But they can sometimes have an interesting second-order impact.
When a company has limited raw material available, management naturally wants to use it where it earns the highest return.
Instead of consuming scarce material to manufacture low-margin products, companies can prioritise higher-margin products.
This creates:
Raw-material shortage → Limited availability → Company prioritises better products → Low-margin products temporarily sidelined → Product mix improves → Margins improve
Therefore, some margin expansion this quarter may not necessarily be coming from pricing power or permanent cost reductions.
It could simply be coming from a temporary improvement in product mix.
This needs to be monitored once raw-material availability normalises.
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5. Strong EV Demand
Automobiles were already one of the stronger pockets of demand, helped by the earlier GST-related boost.
Higher fuel prices have now provided another reason for consumers and businesses to look at EVs.
As petrol and diesel become more expensive, the running-cost advantage of an EV becomes easier for consumers to understand.
Therefore, the war did not necessarily create the EV trend.
It may have accelerated an existing change in consumer preference.
And the opportunity is much wider than EV manufacturers themselves:
Higher fuel prices → Greater EV interest → Higher EV sales → Batteries + motors + electronics + power components + charging infrastructure + EV ancillaries benefit
So rather than looking only at vehicle manufacturers, the entire value chain needs to be studied.
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6. Bigger Structural Tailwinds Are Becoming Visible
Beyond these quarterly factors, there are some areas where the demand environment appears to be undergoing a much bigger change.
These deserve special attention because they may not simply be one-quarter earnings triggers.
They could potentially become multi-year demand cycles.
Cybersecurity
As businesses, governments and consumers become increasingly digital, the amount of valuable data sitting online continues to increase.
At the same time, cyberattacks are becoming more sophisticated.
AI itself can make cyber threats more sophisticated, forcing companies to spend even more on protecting their systems.
So cybersecurity is increasingly moving from something companies want to spend on towards something they have to spend on.
More digitisation + AI-powered threats + valuable data → Higher security requirements → Higher cybersecurity spending
The interesting companies will be those operating in specialised areas where demand is growing faster than competition.
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Artificial Intelligence — But Not Every AI Company
AI is clearly a major tailwind, but simply mentioning AI does not make a company a beneficiary.
The real opportunity may lie with companies that can use AI to:
- reduce their cost of delivering services,
- improve employee productivity,
- deliver work faster,
- handle significantly more volumes with the same workforce,
- offer services competitors cannot easily provide, or
- use lower costs to gain market share from weaker competitors.
This creates an important distinction.
AI adoption alone ≠ investment opportunity.
What matters is:
AI → Productivity/cost advantage → Better customer proposition → Market-share gains → Higher volumes/profits
The biggest winners could therefore be companies where AI strengthens an existing competitive advantage, rather than companies simply selling an “AI story.”
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Energy Security
Recent geopolitical events have once again reminded countries that depending excessively on another country for energy can become a major strategic weakness.
Energy security therefore becomes increasingly important.
Countries may be willing to spend more on:
- domestic oil & gas production,
- LNG infrastructure,
- pipelines,
- nuclear power,
- renewable energy,
- power transmission,
- energy storage,
- grid equipment and
- alternative sources of energy.
The thinking changes from simply:
“What is the cheapest source of energy?”
to:
“What source of energy can we reliably control?”
That change can create multi-year investment opportunities across the energy value chain.
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Defence
The same logic applies to defence.
Wars and geopolitical tensions remind governments that defence equipment cannot always be procured at short notice.
Countries therefore need domestic manufacturing capacity, ammunition reserves, drones, missiles, electronic warfare systems, surveillance equipment and reliable supply chains.
This creates:
Geopolitical tension → Higher defence preparedness → Larger defence budgets → More orders → Capacity expansion → Larger domestic defence ecosystem
For India specifically, companies benefiting simultaneously from higher defence expenditure + localisation/import substitution can be particularly interesting.
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The Bigger Picture
Putting everything together, I would divide the current opportunity into three buckets.
Bucket 1 — Temporary Quarterly Benefits
Inventory gains
Restocking
Pent-up demand
Temporary product-mix improvement
These can produce excellent quarterly numbers, but we should be careful about extrapolating them.
Bucket 2 — Tailwinds That Can Become Structural
Import substitution
Backward integration
EV adoption
These may have started because of temporary disruptions but can continue if customer behaviour permanently changes.
Bucket 3 — Potential Multi-Year Structural Themes
Cybersecurity
AI-led productivity & market-share gains
Energy security
Defence & defence localisation
This is probably the most interesting bucket from a longer-term investment perspective.
The Question to Ask
Whenever a company reports strong growth this quarter, rather than simply asking “Why did earnings grow?”, we should break the growth down:
How much came from inventory gains?
How much came from restocking or pent-up demand?
How much came from supply shortages and better product mix?
How much came from import substitution?
And most importantly, how much came from a structural tailwind that could continue for several years?
That separation can help distinguish a temporary earnings spike from the beginning of a genuine growth cycle.