Power stocks rally for third consecutive year on strong demand

Indian power stocks went up for the third consecutive year on Dalal Street, citing fresh investment announcements and rising demand growth which rebounded to double-digits in November 2022. The sector was supported by the ongoing rally in Adani group stocks.

The BSE Power index rallied the most 32 per cent on a year-to-date basis to December 7, extending its rally to 139 per cent since December 2019. Market players are still bullish about select power stocks. They think power demand may surge over the next 6 -- 7 months on the back of seasonality and general economic activity.

Adani Power shares have gained 225 per cent to 324.35 on December 5, 2022 against Rs 99.75 on December 31, 2021. Adani Transmission was up 58 per cent and Adani Green Energy up 53 per cent. Other power majors including NHPC, NTPC, ABB India, Power Grid and Tata Power advanced somewhere between 2 per cent and 39 per cent during the same period.

Emkay Global Financial Services said PMI manufacturing shows strong manufacturing activity and power demand growth would remain strong in the medium term. As demand saws traction, it believes that companies with underutilised capacity would benefit from it.

Emkay Global Financial Services has a Buy rating on NTPC, NHPC and CESC with a target price of 200, 51 and 101.

Power companies, part of the BSE Power index, reported over 23 per cent year-on-year growth in net profit, a 32 per cent increase in gross sales.

Aditya Sood, Fund Manager, InCred Multicap Portfolio, said that the fortunes of the power sector are aligned to the fiscal spending that the centre and state governments budget. There was a surge in investment announcements around 78 per cent growth over FY 21 in various sectors, as well as an increase in the number of investment announcements in FY 22. He said that the Centre has maintained its strong capital expenditure momentum. Private players are averse to adding coal-based capacities, because the PLF runs at 62 per cent, which is at a 5 year high.