Financial reports frequently mention "heat wave", Indian companies face "test"
2024-08-16
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Extreme weather has become one of the main concerns for Indian businesses and analysts.
Data from Nifty 500 companies show that the term “heat wave” was mentioned more than 80 times in earnings calls for the quarter ended June, a record high compared with just seven times in the same period last year.
Heat wave impact
Larsen & Toubro, India's largest industrial engineering group, said it faced labor shortages caused by elections and extreme heat this quarter. "While we tried to mitigate the heat risk by working in shifts in the early morning and evening, this did not guarantee full productivity for eight or nine hours of continuous work on site," P. Ramakrishnan, executive vice president of the company, said in a conference call.
Indian food delivery company Zomato said high temperatures were one of the factors that led to a sequential decline in profit margins, while Indian consumer goods giant Patanjali also said that the drop in demand caused by the heat wave led to a drop in revenue from its edible oil business.
A heat wave in parts of India also curbed growth in car sales.
Motorcycle maker Bajaj Auto's monthly sales report for June showed its profit growth is likely to hit a five-quarter low as extreme weather caused fewer inquiries from potential customers and delayed their buying decisions.
About half of the 46 NSE Nifty 50 index components that have reported results so far have missed analysts’ average expectations. That’s a sharp increase from the 39% of companies that missed estimates in the previous three months.
Jonathan Garner, chief Asia and emerging markets equity strategist at Morgan Stanley, said that when investors ask about the biggest risk to India's stock market rebound, "the one I tend to mention is climate change."
But on the other hand, the heat wave also boosted the electricity, refrigeration and related industries.
“The Indian gas market looks quite strong,” Sanjay Roy, senior executive vice president for hydrocarbon exploration and production at Reliance Industries, said in a conference call. “LNG imports grew 30% in the first quarter on the back of increased climate compatible development (CCG) demand and gas-fired power generation due to the Indian heatwave.”
Power generators including India’s state power company NTPC reported better-than-expected sales for the quarter, partly due to record summer demand.
Avenue Supermarts, which owns hypermarket D-Mart, also reported selling more cold drinks, ice cream and hygiene products due to the ongoing heatwave.
Climate risks
High temperatures are not uncommon in India. March to June is the hot season in India, and temperatures tend to reach their highest in May and June. However, this year, India is experiencing its longest and hottest summer on record, with temperatures exceeding 50 degrees Celsius in some areas.
According to the India Meteorological Department (IMD)'s criteria, a heat wave is considered if the maximum temperature in the plains exceeds 40 degrees Celsius and in the hills exceeds 30 degrees Celsius.
According to statistics from the Indian Meteorological Department, from April to June this year, about 40% of India's regions experienced heat wave days, twice as many as in previous years, with the total number of hot days reaching 536 (that is, the sum of the number of heat wave days in all 36 climate zones in India), the highest in 14 years.
Economically active Mumbai and Delhi were also scorched by the high temperatures. Since May 13, Delhi has recorded temperatures above 40 degrees Celsius for 40 consecutive days.
India will lose about 5.8% of daily working hours due to heat by 2030, said an April report by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
A research report from the University of Cambridge in the UK last year also stated that by 2050, extreme high temperatures may eventually lead to a 15% drop in the "outdoor work ability" of the Indian population, which will reduce the quality of life of 480 million people in India and cause a loss of 2.8% of the gross domestic product (GDP).
"We find that the market is inconsistently pricing climate risks," said Vlad Byalik, portfolio manager of emerging market value at Ariel Investments LLC. "The market tends to overreact to short-term events and underestimate long-term trends, which is partly caused by climate issues."
(This article comes from China Business Network)
