Heatwave alert: Watch out for these stocks as temperatures soar in India

Eight producers of aerated drinks, power generators and appliances witnessed an average increase of 6.3% in their 12-month ahead earnings per share estimate.

As heatwave grips a significant portion of India, there is optimism of higher earnings for one segment of the stock market. Eight producers of aerated drinks, power generators and appliances such as refrigerators and fans have witnessed an average increase of 6.3% in their 12-month ahead earnings per share estimate since early April. These include- Varun Beverages Ltd. and Havells India Ltd, as per data compiled by Bloomberg.

India heatwave: A man rides a motorcycle with a roof to protect himself from a heatwave on the street in Ahmedabad, India. (Reuters)

In comparison, earnings upgrades for NSE Nifty 50 index have slowed to 2.7% from over 4% in the previous quarter.

This comes as weather agency India Meteorological Department (IMD) issued a red alert for heatwave to severe heatwave conditions for parts of Rajasthan, Haryana, Chandigarh, Delhi, Punjab, Uttar Pradesh, Madhya Pradesh, Vidarbha, Bihar and Maharashtra. IMD said that heatwave to severe heatwave conditions will persist for Punjab, Rajasthan, Haryana, Chandigarh, Delhi, Uttar Pradesh and Madhya Pradesh till May 30.

Vaibhav Sanghavi, a hedge fund manager at ASK Group, said as per Bloomberg, “Heat waves are accelerating the penetration of many cooling products like air conditioners and refrigerators. 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.”

Moreover, surge in the share prices of these companies has driven up their valuations as air conditioner manufacturers are trading at more than a 30% premium to their long-term average one-year forward valuation.

The most impacted are shares of power generator NTPC Ltd. which is trading at more than 100% premium to its long-term average forward valuation while shares of aircon maker Voltas Ltd. and Havells rallied more than 20% this quarter so far. Adani Power Ltd. has seen a 33% increase.