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COVID-19 fears have returned to haunt global equity markets. US equity markets slumped on Monday while Brent crude futures dropped below $70 a barrel, as the spread of the Delta variant has made investors anxious. These fears are weighing on the Asian markets as well today. The COVID-19 situation is not alarming in India, but the incoming corporate earnings warrant a close look to spot signs of pressure.
HDFC Life Insurance, a large private sector life company, saw a steep rise in death claims last quarter. To meet these claims, the company scaled up provisions to Rs 700 crore from Rs 165 crore at the beginning of the current fiscal.
The additional mortality reserves will be sufficient for the current quarter, the management said in an earnings call. A new COVID-19 wave will require the company to set aside more funds. “Management highlighted that it has taken a conservative provisioning and a third wave could lead to further provisioning requirements, although the quantum would be much lower,” analysts at Nomura research said in a note.
Note that HDFC Life has turned cautious at the turn of the pandemic and has been calibrating the sale of pure term insurance policies. The company believes that it has seen the peak of individual death claims. Still, higher provisions adversely affected the company’s profitability ratios in the last quarter, reflecting in a sequential drop in return on embedded value or RoEV.
And HDFC Life is not the only one to feel the heat of COVID-19. HCL Technologies lost revenue momentum last quarter as the pandemic and other factors weighed on its execution. The IT services major, which has a strong presence in the national capital region, saw higher days of absence among its employees. This combined with pandemic-related costs affected profit margins.
Similar to other IT firms, HCL Tech also reported good order inflows and strong hiring. Even so, the weak performance in the June quarter is weighing on the stock, which is down 2 percent at 1 pm. You can read our Research team’s take on HCL Tech’s results here.
The pandemic is seeing large corporates take a lead over their smaller counterparts, show our analysis of the Reserve Bank of India’s data for the January-March 2021 quarter. The road sector is another such segment that is withstanding the pandemic better. The pace of new orders and construction in roads has been steadily gathering momentum. You can read about it here.
Do check out these investing insights from our research team:
HDFC AMC Q1 – Rich valuation and falling market share to limit stock upside
Will the OPEC+ deal halt surging oil prices?Rossari Biotech: Calibrated inorganic strategy opens up opportunities
ACC: Strong quarter despite COVID disruptionsWhat else are we reading today?
The dangers to traditional banking models from fintechs
What could reverse the underperformance of FMCG stocks?
Economic Recovery Tracker | Weekly indicators continue to signal recovery
Rebate extension brings relief for apparel exporters, but more needs to be done
OPEC nations may have called a temporary truce, but cracks between them have widened
Missed the Zomato IPO? Here are other ways to invest in startups
Finally, the European Central Bank moves beyond price stability
Rising dollar stokes nerves for emerging market investors (Republished from the FT)
Technical Picks: Sun Pharma, Dabur, Bajaj Auto and BEL
(These are published every trading day before markets open and can be read on the app)
R Sree Ram