India’s energy consumption rose to an all-time high of 132.98 billion units in April amid a rising level of mercury in the country.
According to the Indian Ministry of Energy, the demand for electricity in the country is expected to rise to 220 GW in the next two months as the Meteorological Department forecasts higher than normal maximum temperatures in the western, central, northwest, northern and northeastern regions.
It’s no surprise, then, that energy-related stocks have been the favorite destinations for investors this year.
Share prices of energy sector companies, including power generation and distribution, have materially outperformed the benchmarks.
Shares of companies like Adani Power, Tata Power, Power Grid and NTPC are up 2 to 175%, so far, this year.
In comparison, the S&P BSE Power Index is up more than 35%, while the benchmark S&P BSE Sensex is down more than 7% over the same period.
However, despite the rally, analysts remain optimistic about related stocks and expect energy utilities to benefit from the difference between rising energy demand and a severe energy crisis.
Talking to business standardAK Prabhakar, head of research at IDBI Capital, said NTPC will be the biggest beneficiary of the coal shortage crisis. It is positive in NTPC, Tata Power and Torrent Power. He said that while energy demand is likely to remain high through June, Cool India will benefit from peak energy demand. However, rising personnel costs are a concern on the sidelines of Coal India.
However, some industrial units in states like Uttar Pradesh, Haryana, Delhi, Punjab, Rajasthan and Tamil Nadu are contemplating cutting production amid the blackout.
Moreover, the dwindling stock of coal, which contributes about 80 per cent of India’s power generation, has also failed to keep pace with the increasing demand for energy.
Although state-owned Coal India has increased supplies to its power plants by 6.7 metric tons compared to last year, analysts are still not sure whether the increased production will meet both international and domestic demand.
Analysts assume that Coal India will benefit from increased volume growth due to acceleration of coal dispatches to power plants on the domestic front.
According to Abjit Pura, Senior Analyst, Sharekhan of BNP Paribas says Coal India is benefiting from higher volume growth year-on-year. Fixed costs weighed on the outlook, while power generation companies’ earnings forecasts remain the same, he says, adding that he is bullish on NTPC, Power Grid and Tata Power.
Meanwhile, higher prices for imported coal due to geopolitical uncertainty are expected to push energy tariffs through the roof.
In March, commercial energy prices jumped to Rs 8.2 per unit against an average of Rs 4 per unit.
According to a report by CRISIL Ratings, trade tariffs for merchants could remain at more than Rs 6 per unit during this quarter – the highest in the past five years.
Overall, with production returning to pre-pandemic levels, the need for clean energy supplies also provides tremendous scope for growth for the energy sector. Therefore, analysts expect the momentum in energy stocks to leave more strength.
Finally, investors saw markets closed choppy, with the front-line Nifty 50 and Sensex indicators closing down 0.67% each.
However, the primary markets were buzzing as the massive LIC IPO was oversubscribed over 2.91 times in the last day.
For today, investors will be watching the earnings report card of Asian Paints, Cipla, Vodafone Idea and Gujarat Gas.
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