Could 2024 be the year for power stocks? Discover the best power companies in India and explore the rising trends in the power sector. Uncover potential multibagger power stocks and renewable energy opportunities, along with the surge in green energy stocks.
Defence stocks had a remarkable run in 2023, drawing considerable investor optimism for the short and long term. However, maintaining such high performance on a consistent basis may be unrealistic for this sector. As the defense stocks possibly take a breather, attention turns to which sector could emerge as the standout performer of the year. Could the power sector seize this opportunity? Let’s delve into this possibility.
India’s Power Sector is on a Roll
India’s economic resurgence following the 2020 recession induced by the pandemic has been robust. The rapid economic rebound has paralleled a significant surge in electricity consumption. At one point, the recovery in power demand was so rapid that coal plants struggled to keep up, necessitating direct government intervention to rectify the issue. Presently, most power plants in India are operating at near-full capacity, with fuel supply posing a minimal challenge. Consequently, the growth trajectory is now focused on increasing capacity.
Leading power companies in India, together with their suppliers, have initiated this capacity expansion process in response to the escalating demand. Projections indicate that India’s electricity consumption is expected to grow by approximately 7% in the near future, signaling a corresponding growth trajectory for the sector as a whole. Furthermore, capacity addition is anticipated to surpass this rate of growth, bringing about a new set of opportunities for investors to consider.
In an endeavor to cater to the steadily expanding demand, some firms within the sector are poised to grow at a faster pace than others, presenting a distinct investment opportunity.
Overcoming Raw Material Challenges
The power industry in India heavily relies on coal-based thermal power, making the supply of coal a pivotal concern during the economic recovery post-lockdown. As the demand for electricity surged, coal-powered plants faced inadequate reserve stocks, exacerbated by disrupted coal supply due to an erratic monsoon and Coal India’s constraints.
Consequently, several power companies resorted to importing costly coal from the global market. Acknowledging the severity of the situation, the government intervened, strategizing special train operations to secure timely coal supplies from Coal India.
Fortunately, the sector has moved past these challenges. Measures implemented by Coal India have successfully mitigated the risk of future supply shortages. Moreover, the decline in global commodity prices is anticipated to alleviate input costs for India’s power plants, thus safeguarding profit margins in the short term.
The combination of stabilized or improving margins and robust revenue growth positions the sector for above-average profit expansion, a favorable prospect for the stock market.
Investing in India’s Power Stocks for 2024
Accelerated Growth in Power Consumption
As India’s economy gains momentum, the power sector is experiencing substantial growth, driven by a sharp rebound in electricity consumption. Power plants are now operating at near-maximum capacity to meet the escalating demand, indicating a significant potential for sectoral expansion.
The Rise of Renewable Energy Stocks
Furthermore, the surge in electricity consumption, expected to grow by approximately 7%, underscores a significant opportunity for the power sector. As the energy landscape continues to evolve, investment in renewable energy stocks is poised to capitalize on this growth and diversify the energy mix.
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Government’s Support for Power Companies in India
India’s robust commitment to achieving net carbon neutrality by 2070 signals substantial government backing for the power sector. The FY 2023-24 Union Budget is indicative of this support, with a noteworthy allocation to renewable energy projects, propelling the potential for the best power stocks to buy.
The allocated ₹73.3 bn for solar energy, reflecting a 48% surge from revised estimates, encompasses grid, off-grid, and the Pradhan Mantri Kisan Urja Suraksha Evam Utthaan Mahabhiyan (PM-KUSUM) projects. Notably, ₹49.7 bn is earmarked for interactive-grid, ₹20 bn for PM-KUSUM, and ₹3.6 bn for off-grid solar energy initiatives.
In parallel, wind energy projects secured an allocation of ₹12.1 bn, showcasing the government’s focused attention on diversifying renewable energy sources. Furthermore, ₹2.8 bn has been directed toward the national green hydrogen mission, underlining the government’s commitment to fostering green energy stocks.
With the government envisioning a 1.6 times increase in power demand in India over the next 4 years, the sector’s growth prospects appear promising. As of November 2023, the installed capacity of India’s power sector stands at 426 gigawatts (GW), projected to escalate to 692 gigawatts by 2028, translating to a formidable compounded annual growth rate (CAGR) of 12.9%.
These supportive measures and the anticipated surge in power demand augur well for the power sector. As investors look for potential power stocks for 2024, the upcoming Union Budget might harbor additional positive developments, offering a favorable outlook for the best power stocks to buy within the dynamic renewable energy and green energy stocks landscape.
Diverse Opportunities in the Power Sector
The market has taken note of the sector’s positive strides, prompting a favorable response from power stocks.
While largecaps such as NTPC experienced an 87% surge in 2023, it’s important for investors to broaden their horizons beyond these prominent stocks. A robust power stock investment strategy should encompass the entire value chain, including engineering firms supplying power plants and companies involved in coal transportation. Additionally, consider intermediaries responsible for electricity supply to end consumers and power trading entities.
Amidst this, it’s crucial to focus on renewable energy stocks, a key priority for both the government and the private sector. These clean energy stocks stand to gain substantially from India’s electric vehicle (EV) boom, representing an undeniable megatrend for astute investors.
Furthermore, the burgeoning smart metering space presents an exciting new megatrend with the potential to revolutionize the sector positively.
In 2024, investors seeking the best power stocks to buy should look beyond the largecaps and explore the diverse opportunities within the power sector, including renewable energy and green energy stocks.
Conclusion
Power stocks stand as strong contenders for investors eyeing potential growth in 2024 and beyond, given the sector’s sustained upward trajectory, buoyed by India’s escalating power demand and the sweeping renewable energy and EV trends.
India’s escalating power demand, coupled with trends like urbanization and increasing disposable incomes, sets the stage for a surge in electricity consumption. The burgeoning demand is fueled by a variety of consumer electronics, including ACs, refrigerators, smart TVs, as well as a multitude of personal devices, which are becoming ubiquitous in households.
The surge in power demand presents a spectrum of opportunities for wealth creation throughout the power value chain. From generation to distribution, the sector displays potential for substantial growth, making 2024 an opportune time to consider investing in these stocks at favorable valuations.
While the bullish trends in the power sector offer promising prospects, it’s essential for investors to exercise prudence and avoid overexposure. Diversification remains paramount in maintaining a well-balanced portfolio, and investors are advised to conduct thorough due diligence before delving into any power stock investments.
In anticipation of potential market shifts in 2024, the power sector is primed to offer lucrative investment opportunities. With a judicious approach and an eye for careful selection, the best power stocks hold the promise of generating substantial returns.
Happy investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
