Hot Summer cool stocks: Consumer durables, power, hotels among key sectors to watch

Prepare for a hotter than usual summer in 2024, the Indian Meteorological Department (IMD) has cautioned. As per an IMD report, India could experience above-normal temperatures with heat waves across the country between March and May this year.

Mercury levels have already started soaring, with southern states like Kerala announcing yellow alerts across ten districts from 22 March after the maximum temperature touched 39 degrees Celsius in several districts.

However, it’s not all gloom and doom. Just as monsoons are crucial for the overall economy and drive demand across various sectors, there are certain industries that look forward to the summer season for higher sales and revenue. Take consumer durables, for example. Demand for air conditioners, fans and other appliances is usually high during this period. Similarly, the power sector also benefits from a surge in demand in summer. Here is the complete list of sectors that should be on investors' radar this summer season:

Power Sector

India’s power consumption is likely to touch a new peak this summer season led by high industrial and household demand. The surge in power consumption will benefit power companies, across the generation, distribution and transmission value chain.

Companies like Tata Power, Power Grid Corporation, NTPC, Adani Power, Adani Green Energy, JSW Energy would be on investors’ radar. Similarly, companies like Indian Energy Exchange (IEX) and Coal India, which supplies coal for power generation, could see higher volumes amid high power demand.

As per the Central Electricity Authority, peak power demand in the country will increase by 7% YoY to 260 GW this summer. In 2023, peak power demand surged to 243 GW against the projection of 229 GW.

To ensure uninterrupted power supply, the Power Ministry has directed power generation companies, including power plants dependent on imported coal, to operate at full capacity. For this the Power Ministry has extended the deadline to import coal for blending purposes till June 2024 instead of March. Also, companies have been asked to continuously review their coal stock position.

Further companies like Torrent Power and Lanco Group, which operates gas-powered power plants have been roped in through a competitive bidding process to supply over 1,300 MW of power during peak summer season.

Consumer durables

Demand for cooling products like air conditioners (ACs), fans, refrigerators and coolers is likely to shoot up with the onset of summer, which could benefit consumer durables makers.

Companies like Voltas, Blue Star, Havells India, Whirlpool, Symphony, Bajaj Electricals, Crompton Greaves and Amber Enterprises India are expected to be in focus. Foreign institutional investors (FIIs) also seem to be fond of the consumer durables sector, with total investments worth ₹1.96 lakh crore as of 29 February 2024 compared to ₹1.49 lakh crore in the same month last year.

Last year, the summer season was a near washout for the consumer durable industry, with sales declining 25 to 30% due to unseasonal rains. Increased cost of commodities, slowdown in discretionary spending and implementation of efficiency ratings led to multi-year low margins for the consumer durables companies.

However, in FY24, the industry expects double-digit revenue growth, led by product premiumisation and growing consumer preference for branded products over local and generic ones. According to media reports, Blue Star is targeting a 25% rise in air conditioner sales driven by strong demand prospects, while Havells has boosted its production capacity in anticipation of summer demand.

Hotels, amusement park operators and airline operators

The travel demand is higher than usual in the summer amid yearly school holidays and travellers seeking cooler destinations for travel. This trend could benefit hotel chain operators, amusement park companies and travel booking operators.

Tata Group-owned Indian Hotels, Lemon Tree Hotels, Chalet Hotels and Easy Trip Planners are the key stocks to watch out for from the hotel and travel booking segment. Imagicaaworld Entertainment and Wonderla Holidays are the amusement park operators in the listed space. Further, the rise in summer tourism is also expected to give a boost to airline stocks like Indigo and SpiceJet.

Conclusion

Investors who plan to invest in summer stocks this season should know that the above-average length of the summer season and above-average temperature during these months are ideal for the sales growth of consumer durables, power and travel & amusement related companies.