ESG on the agenda
The Indian market continued its upward journey in June.
As India recovers from the second wave of Covid-19, which hit in April and May, the stock market is gaining. There is, of course, a certain connection since the spread of infection impacts economic activity. At present, the number of new cases is around 40,000 per day, which is one tenth of the peak. Compared to the situation a year ago, the economy has fared better as India did implement a national lockdown.
The stock market did not fall much when the second wave hit, and the index is at a new all-time high.
We are in a news vacuum right now, awaiting the reports for India’s first quarter. Company profits will clearly be affected for this quarter since there have been selective restrictions in some states. Compared with quarter one last year, however, things will look good since more or less everything was at a standstill back then.
I conducted a number of video meetings with portfolio companies in June, and most had an upbeat view of the future. Both HDFC Bank and Icici Bank saw stable growth in lending of 14 percent, while Axis Bank is growing by 9 percent. An important contributing factor is the demand for mortgages. Lower bad debt losses and stable margins mean that the profit outlook is promising for the coming year.
Industrial companies are experiencing some margin pressure as a result of higher commodity prices. However, several companies, including Asian Paint, Balkrishna Industries, Voltas and Ultratech Cement have been able to implement price increases this year.
We had discussions with several companies on ESG issues. India’s regulator, SEBI, recently introduced stricter reporting requirements for listed companies. One issue that was raised was companies’ work with quantifiable objectives for ESG, the sustainable development goals (SDGs). Several of the companies in our portfolio already use the SDGs and are making ongoing efforts. There are now multiple companies in process industries that often have a coal-based energy supply working to replace coal with natural gas and renewable energy sources to reduce their environmental impact.