Predictions of scorching heat across India are giving traders a fresh opportunity as they look for stocks that could outperform in an overvalued market.
Shares of air cooler makers and power generators rose this week after the country’s weather agency warned of above-normal temperatures through the end of June. The regional progress comes amid concerns that broader equity indices are lacking momentum after a record-breaking rally.
Millions of voters will attend campaign rallies in the coming months and cast their ballots in parliamentary elections scheduled to last for weeks starting in mid-April. Such increased activity will increase the impact of extreme weather and increase demand for products to deal with the heat.
Although many sectors may benefit, the overall market impact of the heat wave is more complex. The risk of water shortages and crop losses could keep food prices high, potentially pushing back the timing of a rate cut by the Reserve Bank of India. Increase in energy demand may increase power shortage in some areas.
Here are some sectors to watch:
air Cooling
Shares of companies making air conditioners, coolers and fans reacted immediately to the weather warning. The equally weighted group of eight companies that make air cooling products jumped more than 8% this week.
“Demand for consumer durables and white goods appliances is expected to grow not only from metro cities but also from semi-urban, rural India,” said Gaurang Shah, strategist, Geojit Financial Services Ltd.
In comparison, the benchmark NSE nifty 50 The index rose less than 1% in the last five sessions. The gauge is trading at a multiple of about 20 times its forward 12-month earnings estimates, while the MSCI Asia Pacific index has a reading of slightly more than 14, and more than its own five-year average of 19.2 times.
stocks to watch These include Voltas Ltd, Blue Star Ltd, Havells India Ltd, Johnson Controls-Hitachi Air Conditioning India Ltd and fan maker Crompton Greaves Consumer Electricals Ltd.
“We remain positive on air conditioners,” said Nikhat Coor, analyst at Dolat Capital Markets. He cited lower accessibility, increase in residential and commercial projects and consumer finance options as reasons to see an increase in demand. He wrote in a note last month that dealers expect sales to rise 15% to 20% during the peak months through May.
energy companies
The India Meteorological Department expects heat waves to last 10 to 20 days in different areas during the three-month summer, up from the normal four to eight days. The mercury often exceeds 45C (113F) in some parts of the country during the season.
The power ministry said peak power demand during this period is estimated to rise to 250 GW, an increase of about 3% from a year ago. The ministry also asked plants to continue importing coal to compensate for any shortfall in local supply.
shares of Adani Power Limited And Reliance Power LimitedOperators of thermal power plants posted gains of at least 15% each this week.
consumer goods
Consumption of soda, ice cream, and dairy products typically increases rapidly during the summer. Companies in India, especially large companies like Hindustan Unilever Limited and ITC Limited, are focusing on demand revival in rural areas by offering smaller sized products at lower costs.
Varun Beverages Ltd., one of the world’s biggest bottlers for PepsiCo Inc., climbed more than 6% this week, bringing its gain to nearly 20% this year. Other stocks of interest include dairy firm Hatson Agro Products Ltd, Parag Milk Foods Ltd, ice cream maker Vadilal Industries Ltd.
“Beverage companies are bullish on summer demand,” said Shah of Geojit Financial Services. He said companies are looking at introducing new products targeting different consumer groups.
Analysts are also keeping an eye on Emami Ltd, which sells Navratna oil popular for massage.
weather related risks
In addition to the potential market increase, extreme heat could strain the country’s energy supplies and impact wheat harvests. Even before temperatures rise, Bengaluru’s tech hub is grappling with water shortage amid drought.
In 2022, several states faced prolonged blackouts as heat waves increased energy demand at a time when coal reserves were depleted. As water sources dry up, some companies, especially operators of huge plants, have had to suspend operations in past years.
“There are risks associated with extreme climate events,” said Jigar Shah, chief executive officer, MIB Securities India. If predictions come true that heat waves will last longer than normal, it would cause serious problems for industries that depend on groundwater and their supply chains, he said.
Shares of air cooler makers and power generators rose this week after the country’s weather agency warned of above-normal temperatures through the end of June. The regional progress comes amid concerns that broader equity indices are lacking momentum after a record-breaking rally.
Millions of voters will attend campaign rallies in the coming months and cast their ballots in parliamentary elections scheduled to last for weeks starting in mid-April. Such increased activity will increase the impact of extreme weather and increase demand for products to deal with the heat.
Although many sectors may benefit, the overall market impact of the heat wave is more complex. The risk of water shortages and crop losses could keep food prices high, potentially pushing back the timing of a rate cut by the Reserve Bank of India. Increase in energy demand may increase power shortage in some areas.
Here are some sectors to watch:
air Cooling
Shares of companies making air conditioners, coolers and fans reacted immediately to the weather warning. The equally weighted group of eight companies that make air cooling products jumped more than 8% this week.
“Demand for consumer durables and white goods appliances is expected to grow not only from metro cities but also from semi-urban, rural India,” said Gaurang Shah, strategist, Geojit Financial Services Ltd.
In comparison, the benchmark NSE nifty 50 The index rose less than 1% in the last five sessions. The gauge is trading at a multiple of about 20 times its forward 12-month earnings estimates, while the MSCI Asia Pacific index has a reading of slightly more than 14, and more than its own five-year average of 19.2 times.
stocks to watch These include Voltas Ltd, Blue Star Ltd, Havells India Ltd, Johnson Controls-Hitachi Air Conditioning India Ltd and fan maker Crompton Greaves Consumer Electricals Ltd.
“We remain positive on air conditioners,” said Nikhat Coor, analyst at Dolat Capital Markets. He cited lower accessibility, increase in residential and commercial projects and consumer finance options as reasons to see an increase in demand. He wrote in a note last month that dealers expect sales to rise 15% to 20% during the peak months through May.
energy companies
The India Meteorological Department expects heat waves to last 10 to 20 days in different areas during the three-month summer, up from the normal four to eight days. The mercury often exceeds 45C (113F) in some parts of the country during the season.
The power ministry said peak power demand during this period is estimated to rise to 250 GW, an increase of about 3% from a year ago. The ministry also asked plants to continue importing coal to compensate for any shortfall in local supply.
shares of Adani Power Limited And Reliance Power LimitedOperators of thermal power plants posted gains of at least 15% each this week.
consumer goods
Consumption of soda, ice cream, and dairy products typically increases rapidly during the summer. Companies in India, especially large companies like Hindustan Unilever Limited and ITC Limited, are focusing on demand revival in rural areas by offering smaller sized products at lower costs.
Varun Beverages Ltd., one of the world’s biggest bottlers for PepsiCo Inc., climbed more than 6% this week, bringing its gain to nearly 20% this year. Other stocks of interest include dairy firm Hatson Agro Products Ltd, Parag Milk Foods Ltd, ice cream maker Vadilal Industries Ltd.
“Beverage companies are bullish on summer demand,” said Shah of Geojit Financial Services. He said companies are looking at introducing new products targeting different consumer groups.
Analysts are also keeping an eye on Emami Ltd, which sells Navratna oil popular for massage.
weather related risks
In addition to the potential market increase, extreme heat could strain the country’s energy supplies and impact wheat harvests. Even before temperatures rise, Bengaluru’s tech hub is grappling with water shortage amid drought.
In 2022, several states faced prolonged blackouts as heat waves increased energy demand at a time when coal reserves were depleted. As water sources dry up, some companies, especially operators of huge plants, have had to suspend operations in past years.
“There are risks associated with extreme climate events,” said Jigar Shah, chief executive officer, MIB Securities India. If predictions come true that heat waves will last longer than normal, it would cause serious problems for industries that depend on groundwater and their supply chains, he said.
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