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A blistering summer gripping a significant portion of India is fueling optimism for higher earnings in one segment of the nation’s $4.8 trillion stock market.
Varun Beverages and Havells India are among eight producers of aerated drinks, power generators, and appliances such as refrigerators and fans that have seen an average increase of 6.3 per cent in their 12-month ahead earnings per share estimate since early April, according to data compiled by Bloomberg.
In contrast, earnings upgrades for the benchmark NSE Nifty 50 index have slowed to 2.7 per cent, down from over 4 per cent in the previous quarter.
Increasing Demand for Cooling Products
“Heat waves are accelerating the penetration of many cooling products like air conditioners and refrigerators,” said Vaibhav Sanghavi, a hedge fund manager at ASK Group. “We will see sustained earnings growth in these companies as demand is robust, but it will be important to see if it reflects in margins too.”
India recorded its highest temperature of 50C (122F) in Rajasthan on Saturday, May 25. The hot spell coincides with the nation’s weekslong 2024 Lok Sabha elections that have drawn millions of voters to campaign rallies and polling stations. This heightened activity is expected to further amplify the impact of extreme weather and drive up demand for heat-combating products.
However, the surge in the share prices of these companies has also driven up their valuations. Air conditioner manufacturers, for instance, are trading at more than a 30 per cent premium to their long-term average one-year forward valuation. Power generator NTPC is trading at more than 100 per cent premium to its long-term average forward valuation.
Notable Stock Performances
Shares of aircon maker Voltas and Havells have rallied more than 20 per cent this quarter so far, while Adani Power has seen a 33 per cent increase.
Product inventory “has started to disappear from our warehouses,” Voltas’ Chief Financial Officer Jitender Verma said after the company’s fourth-quarter earnings on May 3. “I am sure no matter how good a planner you are, I don’t think this kind of growth would have been planned by anybody,” he said.
(With inputs from Bloomberg)
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Published: 27 May 2024, 06:49 AM IST
