Power stocks build momentum amid India's energy crisis

India’s power consumption spiked to an all-time high of 132.98 billion units in April amid the rise in mercury level in the country.
According to India’s power ministry, the country’s electricity demand is expected to rise to 220 gigawatts in the next two months as meteorological department forecasts above normal maximum temperatures in west-central, north-west, north and north-eastern regions.

It’s not surprising then, that power-related stocks have been the favourable destinations with investors this year.
The stock prices of power sector companies, including power generation and power distribution, have done materially better than benchmark indices.
 
Shares of companies like Adani Power, Tata Power, Power Grid, NTPC have surged from 2 to 175%, so far, this year.
In comparison, the S&P BSE Power index has gained over 35%, while the benchmark S&P BSE Sensex index declined over 7% during the same period.
 
However, despite the rally, analysts remain bullish on related stocks and expect power utilities to benefit from the spread between rising power demand and acute energy crisis.
 
Speaking to Business Standard, AK Prabhakar, Head of Research, IDBI Capital, said NTPC will be the biggest beneficiary of coal-shortage crisis. He is positive on NTPC, Tata Power and Torrent Power. While power demand is likely to remain elevated till June, Coal India will be a beneficiary from peak power demand, he said. However, higher employee costs a worry for Coal India’s margin.
 
That said, some industrial units in states like Uttar Pradesh, Haryana, Delhi, Punjab, Rajasthan, Tamil Nadu, are reportedly considering production cuts amid power outages.
Moreover, the dwindling inventory of coal, which contributes nearly 80 per cent of India’s power generation, has also failed to keep pace with the elevated energy demand.
 
Though stated-owned Coal India has ramped up supplies to power plants by 6.7 metric tons from a year ago, analysts remain uncertain whether the increased output would cater to both international as well as domestic demand.
Analysts assume Coal India to benefit from higher volume growth due to accelerated dispatches of coal to power plants at domestic front.
 
According to Abhijeet Bora, Senior Analyst, Sharekhan by BNP Paribas says Coal India a beneficiary from higher volume growth YoY. Fixed costs dent outlook, while earnings outlook for power-generation companies remains intact, he says adding that he is bullish on NTPC, Power Grid and Tata Power.
 
Meanwhile, high prices of imported coal due to geopolitical uncertainties are expected to send power tariffs through the roof. 
In March, merchant power prices surged to 8.2 rupees per unit as against an average of 4 rupees per unit.
 
According to a report by CRISIL Ratings merchant tariffs could remain over 6 rupees per unit this quarter – the highest in the past five fiscals.
 
Overall, with production reviving to pre-pandemic levels, the need for clean power supply also gives immense scope of growth for the power sector. Therefore, analysts expect the momentum in power stocks has more steam left.
 
Lastly, investors saw markets shut on a choppy note, as frontline indices Nifty 50 and Sensex closed 0.67% lower each.
However, primary markets were abuzz as the mega LIC IPO was subscribed over 2.91 times on the final day.
As regards today, investors will watch out for earnings report card of Asian Paints, Cipla, Vodafone Idea and Gujarat Gas.