Hot demand for aircon in 40-degree India

The Indian market was strong in March. Carnegie Indienfond rose 7.1 percent. An impressive 5 percent currency gain contributed to the performance.

The Indian financial year 2020/21 closed with a positive stock market on the last day of March. The year will go down in history as one of the weakest in terms of GDP growth, in fact the worst in 40 years, but India is far from alone in this.

We envisage a strong economic recovery in the coming year. GDP can be expected to rise by double digits and corporate profits will also recover. Since the economy opened in October, it is above all increased demand for capital goods and housing that is driving developments.

Sales of cars and motorcycles previously saw a rapid increase but are now experiencing a more normal trend. Banks are offering mortgages below 7 percent and some states have reduced the legal fees for home purchases. This has accelerated sales of homes, which in turn are driving demand for cement (Ultratech Cement), paint (Asian Paint) and air conditioning (Voltas).

We are entering the summer season with temperatures of over 40 degrees Celsius, and the number of people working from home is boosting the need for aircon. Rising commodity prices are impacting the margins of many industrial companies, but Voltas has upped its prices by 10 percent this year. Several Indian companies are benefiting from a rapid global recovery.

Heavy trucks are selling very well in the United States and this is benefitting Bharat Forge, which makes cast metal components. Balkrishna Industries, which manufactures special tyres for industries such as mining, is experiencing solid order intake. Motherson Sumi Systems, a manufacturer of components for all leading car brands globally, is also signalling robust sales, and as much as 24 percent of its future order book is parts for electric vehicles, which are growing rapidly in importance.

The banks have come through the pandemic without excessive losses so far, but there is tough competition for new lending, which has led to a price war on mortgages. Most banks are cautious about lending for pure consumption, and corporate investment has not picked up yet.

In the past week, the spread of Covid-19 has increased steeply again, especially in Maharashtra where Bombay is located. In the short term, this could negatively impact developments.

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