Analysts bullish on power sector stocks as Power Ministry extends Section 11 deadline till October 15

Torrent Power, BHEL & Tata Power are top 3 gainers this year, rising 70%, 33% & 31%

Power Sector stocks - Tata Power, Torrent Power and NTPC have touched all-time high on Monday. The sector has been under investors’ radar in FY24 on the back of strong energy demand and robust investment by public & pvt sector firms in expanding their generation capacity. With IMD expecting extreme heat until June and the government anticipating power demand to peak between 256260 GW this summer, almost ~7 per cent more than the peak power demand of 243 GW in September 2023, analysts have turned bullish on the power sector stocks.

The Ministry of Power has announced an extension of the deadline for imported coalbased power plants to operate at full capacity until October 15, against the previous deadline of June 30. This update was provided in an official notification released on Friday. Notably, the prices of imported coal are considerably higher than those of domestic coal, resulting in increased tariffs. However, operating under Section 11 allows for the variable cost to be passed through.

Analysts are still bullish on the sector stocks as energy demand and investment in expanding the capacity – renewable as well as conventional. Torrent Power, BHEL and Tata Power are top three gainers in the current year, rising 70 per cent, 33 per cent and 31 per cent respectively.

“A continuation of electricity demand growth at ~6 per cent+ levels over the next few years, is the fulcrum which supports the roadmap and positive outlook of power capacity addition – both green, and even grey till on-demand/load following green power begins displacing greenfield thermal projects on economics,” said a recent Axis Capital report on the sector. Axis Capital’s top picks include Tata Power, NTPC, CESC and JSW; while it has a sell on Torrent Power, Power Grid and IEX.

Apart from Axis

JM Financial is also positive on power sector stocks. “Given the focus of all Indian utilities on enhancing their RE portfolio with storage, we are aligned with their strategic objectives and optimistic about their earnings trajectory,” says JM Financial’s recent report. JM Financial has a ‘Buy’ rating on Tata Power, NTPC, Power Grid, Coal India, JSW Energy, NHPC, Suzlon & BHEL; while ‘Hold’ rating on CESC and ‘Sell’ rating on SJVN and Torrent Power.