As India braces for scorching heat waves, traders are on the lookout for stocks that can outperform in an overvalued market. The recent rally in shares of air cooler makers and power generators comes as the nation’s weather agency warns of hotter-than-usual temperatures through the end of June. This sectoral advance is seen as a potential opportunity for investors as concerns grow over the lack of momentum in the broader equity indexes following a record-breaking rally.
The upcoming months will also see a surge in political activity with hundreds of millions of voters attending campaign rallies and heading to the polls in a parliamentary election that lasts for weeks starting mid-April. This increased activity is expected to amplify the impact of extreme weather conditions and boost demand for products to tackle the heat.
While several sectors stand to benefit from the heat wave, the overall market impact is complex. Risks of water shortage and crop damage may keep food prices elevated, potentially delaying the timing for the Reserve Bank of India’s rate cut. Additionally, a spike in energy demand could exacerbate power shortages in some regions.
Some sectors to watch include air cooling, energy companies, and consumer goods. Stocks of companies that make air conditioners, coolers, and fans have already seen a significant jump in response to the weather warning. Energy companies like Adani Power Ltd. and Reliance Power Ltd. are also posting gains as the power ministry projects a rise in maximum power demand during the summer period.
Consumption of soda, ice creams, and dairy products typically sees a sharp increase during the summer, benefiting companies like Varun Beverages Ltd. and dairy firms like Hatsun Agro Product Ltd. Analysts are also keeping an eye on Emami Ltd., known for its cooling massage oil, as well as other companies targeting summer demand.
However, the hotter summer weather also poses risks to the market, including strain on energy supplies and potential damage to wheat crops. The tech hub of Bengaluru has already been grappling with water shortages amid a drought, and extreme climate events could have serious implications for industries dependent on groundwater and their supply chains.
As traders navigate the market in the face of extreme weather conditions, the potential for both opportunities and risks looms large. Stay tuned for more updates on how the market responds to the heat wave in the coming months.
