The momentum in the S&P BSE Sensex might have run out of steam but the S&P BSE Energy index, and the S&P BSE Power index hit a fresh record high on Wednesday.  

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Energy stocks are in limelight amid news around the Electricity Amendment Bill 2021 that could be a game-changer, along with elevated energy prices and increasing power demand particularly in China and European region.  

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“The rally is due to the news circulating the Electricity Amendment Bill 2021 which was presented in Budget 2021 if passed will be beneficial for the many players in the power industry,” Mohit Nigam, Head - PMS, Hem Securities, said.  

“The bill plans to delicense state monopolies in power distribution and open them for competition. This way the consumer has the choice in choosing its power service provider,” he said.  

Brent Crude oil prices stablised after hitting $80/bbl, its highest level since October 2018, said a Reuters report. China faces mounting pressure to ramp up coal imports and ensure supplies to keep lights on also lifted demand for the energy space, it said.  

"Energy markets remain in the headlines as natural gas and oil prices surge to multi-year highs. The energy crunch raises fears about the upcoming winter heating season and longer-lasting tightness," Norbert Rücker, Head Economics and Next Generation Research, Julius Baer, said.  

The S&P BSE Energy index hit a high of 8013 while the S&P BSE Power index hit a record of 3191 in intraday trade on Wednesday.  

Tracking the momentum there are 10 stocks that hit fresh 52-week high which include names like Coal India, NTPC, Power Grid, Tata Power, Torrent Power, IOC, OIL, etc. among others.  

“Energy index is at an all-time high on account of elevated energy prices and increasing power demand particularly in China and Europe region,” Sandeep Matta, Founder TRADEIT Investment Advisor, said. 

Chinese companies are in the grip of a severe shortage of both coal and electricity-based fuel and are unable to meet the surge in growth post covid while both crude oil and natural gas prices are also at trading obnoxiously higher levels.  

“Power companies like coal India, Tata Power, NHPC, Power Grid etc. are the major beneficiaries of this global supply scarcity and stocks are these companies are making daily highs despite depressed market conditions,” he said.  

Experts’ recommendation on the power and energy stocks. If someone plans to invest in the power space then ideally they should have a time horizon of 12-15 months.  

Expert: Ankit Pareek, Research Anlayst at Choice Broking. 

Top Picks - NTPC, Power Grid and Tata Power 

World’s largest electricity consumer China is facing a power shortage amid tight coal supplies and strict emission standards. Following that report, India’s energy and power stocks are witnessing strong buying traction. 

We have a positive outlook on NTPC, Power Grid, and Tata Power. Ideally, investors should have an investment horizon of two to three years and adopt add-on dips strategy. 

Expert: Sandeep Matta, Founder TRADEIT Investment Advisor, said. 

Top Picks - GAIL India, BPCL, NHPC, IOC 

Most of the energy and power-related counters are already moved up significantly and should be held for more gains. 

Companies such as GAIL India, BPCL, NHPC, IOC are still looking attractive and available at lower valuation however new investors are advised to follow accumulate more on dip strategy keeping the long-term time horizon of 12-15 months in the mind.   

Expert: Ajit Mishra, VP - Research, Religare Broking Ltd 

Top Picks - Tata Power, Power Grid, and NTPC 

The energy shortage in China is currently fueling the rally in power and other related stocks, not only in India but in developed markets too. 

Besides, the expectations of better-than-expected economic recovery and government measures to revive the power sector are further adding to the buoyancy. 

This space has not been a great wealth creator given the number of challenges faced by the sector over the last several years. Though the government has announced several measures, it would take time to reflect on the ground. 

We would recommend being selective and prefer companies that have a stable business, strong cash generation, and sound fundamentals. We are positive on stocks like Tata Power, Power Grid, and NTPC for the long term. 

Expert: Mohit Nigam, Head - PMS, Hem Securities 

Top Picks -- Tata Power & IEX 

The investors should have a long-term of 3-5 years' time frame for investments in the power sector. As the construction of projects and development of Infrastructure takes a long time to develop and commission. 

The CAPEX plans make the companies to raise debts or dilute the equity, which impacts the profits in the short term but improves profits of the companies over the long run. 

The companies which look attractive in this space are Tata Power with a presence in the complete power value chain from generation, transmission, distribution, and renewables. 

Also, monopoly business Indian Energy Exchange to have efficient power trading and price discovery.  IEX provides a platform by giving options to power generators and power consumers to enter in short-term contracts or spot purchases at optimum prices benefiting the complete value chain. 

 

(Disclaimer: The views/suggestions/advices expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)