Despite India’s energy problem, power equities are gaining traction

India's power consumption

In April, India’s power consumption reached an all-time high of 132.98 billion units, owing to the country’s rising mercury levels.

The country’s electricity demand is likely to grow to 220 gigawatts in the next two months, according to India’s power ministry, as the meteorological department predicts above-normal maximum temperatures in the west-central, north-west, north, and north-eastern regions.

It’s no surprise, then, that power-related stocks have been the most popular investment choice this year.

Stock prices in the power sector, which includes electricity generating and distribution, have performed significantly better than benchmark indices.

So far this year, shares of Adani Power, Tata Power, Power Grid, and NTPC have risen between 2 to 175 percent.

In comparison, the S&P BSE Power index has risen over 35% since its inception, while the benchmark S&P BSE Sensex index has fallen over 7%.

Despite the surge, analysts are still bullish on linked companies, predicting that power utilities will benefit from the gap between expanding power demand and the acute energy crisis.

NTPC will be the greatest benefactor of the coal supply situation, according to AK Prabhakar, Head of Research, IDBI Capital. NTPC, Tata Power, and Torrent Power are all favourable for him.

However, due to power outages, some industrial firms in regions such as Uttar Pradesh, Haryana, Delhi, Punjab, Rajasthan, and Tamil Nadu are allegedly mulling production cuts.

India's power consumption

Furthermore, India’s diminishing coal inventory, which accounts for nearly 80% of the country’s power output, has failed to keep up with rising energy demand.

Despite the fact that state-owned Coal India has raised supplies to power plants by 6.7 metric tonnes year on year, analysts are sceptical that the additional output will meet both foreign and domestic demand.

Coal India is expected to gain from increased volume growth due to faster coal deployments to power plants on the domestic front, according to analysts.

Coal India, according to Abhijeet Bora, Senior Analyst at BNP Paribas Sharekhan, has benefited from stronger volume growth YoY. Fixed costs have dragged down the forecast for power-generation businesses, he adds, adding that he is positive on NTPC, Power Grid, and Tata Power.

Meanwhile, high import coal prices caused by geopolitical uncertainty are projected to drive up power prices.

Merchant power rates soared to 8.2 rupees per unit in March, up from an average of 4 rupees per unit in February.

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