Energy stocks are gaining momentum amid India’s energy crisis

India’s electricity consumption rose to an all-time high of 132.98 billion units in April amid increases in mercury levels in the country.

According to India’s Department of Energy, the country’s electricity demand is expected to increase to 220 gigawatts over the next two months as the meteorological department forecasts temperatures above normal highs in the west-central, north-west, north and north-east regions.

So it’s not surprising that energy stocks have been investors’ favorite targets this year.

Share prices of companies in the energy sector, including power generation and distribution, have fared significantly better than benchmark indices.

Shares of companies like Adani Power, Tata Power, Power Grid and NTPC are up from 2% to 175% so far this year.

In comparison, the S&P BSE Power index is up over 35%, while the benchmark S&P BSE Sensex index is down over 7% over the same period.

Despite the rally, analysts remain bullish on related stocks and expect utilities to benefit from the spread between rising energy demand and the acute energy crisis.

Speak with business standard, AK Prabhakar, Head of Research, IDBI Capital, said NTPC will be the biggest beneficiary of the coal shortage crisis. He is positive about NTPC, Tata Power and Torrent Power. While power demand is likely to remain high through June, Coal India will benefit from peak power demand, he said. However, higher labor costs are worrying Coal India’s margin.

However, some industrial units in states like Uttar Pradesh, Haryana, Delhi, Punjab, Rajasthan and Tamil Nadu are reportedly considering production cuts during power outages.

In addition, the dwindling supply of coal, which accounts for nearly 80 percent of India’s electricity generation, has also not been able to keep up with increased energy demand.

Although state-owned Coal India increased shipments to power plants by 6.7 tonnes year-on-year, analysts remain uncertain whether the increased production would meet both international and domestic demand.

Analysts expect Coal India to benefit from higher volume growth due to accelerated coal shipments to domestic power plants.

Coal India is a beneficiary of higher year-on-year volume growth, according to Abhijeet Bora, Senior Analyst, Sharekhan at BNP Paribas. Fixed costs weigh on prospects while earnings prospects for power generation companies remain intact, he says, adding he is bullish on NTPC, Power Grid and Tata Power.

Meanwhile, high prices for imported coal are expected to push electricity tariffs higher due to geopolitical uncertainties.

In March, commercial electricity prices rose to 8.2 rupees per unit versus an average of 4 rupees per unit.

Trading tariffs could remain above Rs.6 rupees per unit this quarter – the highest in the last five financial years, according to a report by CRISIL Ratings.

Overall, the need for clean power supply also offers immense room for growth for the energy sector as production revives to pre-pandemic levels. As such, analysts expect the momentum in energy stocks to have even more steam.

Finally, investors saw markets finish choppy as the frontline Nifty 50 and Sensex indices each closed 0.67% lower.

However, the primary markets were in turmoil as the mega LIC IPO was drawn over 2.91 times in the last day.

From today’s perspective, investors will be watching earnings reports from Asian Paints, Cipla, Vodafone Idea and Gujarat Gas.

Leave a Reply

Your email address will not be published.