Shares of Torrent Power, NTPC and Power Finance Corp hit their lifetime highs on Wednesday, while REC hit its lifetime high earlier this month. Renewable energy player Suzlon Energy is also at a multi-year high, while Tata Power was at its highest level in more than a month.
“Given the scanty and dry monsoon, we are seeing power demand shoot up leading to a demand-supply deficit, along with an uptick in rates. There is also a buzz that the government is looking to revive defunct power plants through green incentives,” said Sunny Agrawal, head of fundamental research at SBI Securities.
“Although the focus is on renewable energy and it will probably see a higher pace of growth, given that it is not consistent yet, renewable and thermal are set to grow hand in hand for the next few years,” he said.
Power demand has jumped 16% on-year between August to October, and is 9% higher compared to the previous year so far in FY24. The inventory level for coal, meanwhile, has dropped to eight days in November as against a normal of 9-11 days, Jefferies said in a recent report.
This robust growth in demand for power is reflected in share prices, with power generators, distributors and financing companies sitting on hefty gains of 32-274% so far in 2023, a significant portion of which has come in the last three months.
These include Tata Power, Torrent Power, NTPC, Suzlon Energy, Coal India, REC and PFC.Benchmarks Nifty 50 and Sensex are up 10-11% so far in 2023, with market capitalisation of the broader market touching $4 billion on Wednesday.
“This sector has been in a sideways trend for some time now, but the structure has turned positive in the last three to four months,” said Rajesh Palviya, head of technical and derivatives research at Axis Securities.
Given that the sector is seeing “smart buying” amid subsidies for power being withdrawn by state governments, he is positive on shares of Torrent Power, NTPC and power finance companies REC and PFC.
Agrawal of SBI Securities believes that even though share prices may see some consolidation in the near term, the power sector is now a structural growth story, especially given that it will become a priority for the government as it looks to establish India as a manufacturing hub as an alternative to China.