Power stocks light up on Dalal Street

Mumbai: Several power companies appear to be emerging out of a long winter on Dalal Street. Shares of power producers have been outperformers in recent weeks as the jump in demand for electricity coupled with shortages and cheaper valuations have boosted investor appetite in the sector. Tata Power, NTPC and Power Grid are among the top sector picks though some analysts think upsides in the near-term could be limited after the recent run-up.

The BSE Power index is up 22% in last one month. Among the Power index constituents, Adani Power is up 109% in the last one month at ₹259.20 amid the rally in Adani Group shares. Tata Power has gained 9.5% in last one month. NTPC shares have gained almost 25% since January 1, while Power Grid has risen 10.2% during this period.

Fund managers and analysts said the gains in power companies might be here to stay as the flavour in the market shifts to beaten-down value stocks from the richly-valued growth stocks such as Asian Paints, Pidilite, HDFC Bank and HUL, among others.

“From a 2-3-year view, most power stocks could double from here,” said Rohit Srivastava, founder of Indiacharts.com. In the short-term, he does not see more than 4-5% upside in the power stocks.

In the past year, the power index has doubled while Sensex is up 19% for the same period.

“The country has seen a spike in peak demand on account of 100% electrification and rise in air-conditioning penetration. Peak power shortage has risen to 3.9% and coal inventory has reduced to eight days from 25 days earlier. This is creating a positive sentiment for power companies which were struggling at one time price to book and ESG (Environmental, Social, and Governance) concerns,” said Charanjit Singh, fund manager of DSP Mutual Fund’s TIGER scheme, which invests in companies in infrastructure-related activities.

India’s power sector is currently trading at an average of 2.7 times FY23 price to book ratio which is at a 40% premium to the past 10-year average, said Daiwa Capital Markets in a recent report. Investors have ignored most power shares since 2007-08, when the bull run in the sector ended with the global financial crisis.