By Ruma Dubey

Power stocks are lit up – not just electrical utilities but also electrical equipment stocks. The sector was in the green on Friday and today, it is up stronger, up over 2% and of the 17 stocks, 15 stocks have advanced and only two are down.

All of a sudden, the sector which was banished into doomsday darkness is now being eyed as the new light. And this about turn change in perception is because of the Govt distinctly showing that it will push big time reforms in the sector.  Almost the entire country, barring Mumbai and the VIP regions in various cities is grappling with acute power cuts.  The Prime Minister last week spelt out ambitious infrastructure development plans for FY13, which included a plan to add a record 18,000 megawatts (MW) of power capacity. Thus expectations that power sector reforms would be fast-tracked have kept the power stock prices buoyant.

The biggest road block for the sector, apart from non-availability of land, is the non-availability of coal. But today, there was news that Coal India is chalking out plans to supply incremental coal if buyers can lift it directly from the mines and make their own transport arrangements. This Do-It-Yourself (DIY) deal from Coal India is being welcomed by the private sector power producers. Yes, the private power makers will have major logistical issues at hand – like how to get the coal to their site? Will the wagons be available?  But all these questions are something which, the power companies say can be easily resolved as they feel getting coal in itself is a big deal. Coal India is sitting on coal piles of more than 60 million tons and is not able to supply while power companies are not able to get their power projects completed due to non-availability of coal.  Thus there is now hope this deadlock might soon get unlocked and this has pushed optimism around the power stocks.  

Removing roadblock for supply of coal to power projects is a big deal for the sector as 65% of the power generated in India is via thermal and the main raw material used is coal.  83% of thermal power is generated using coal as a raw material whereas 16% of thermal power uses gas and 1% thermal plants use oil.

And FIIs also seem to have turned their attention to power stocks. A quick glance at the shareholding pattern for Q4FY12 shows that they have increased their exposure in power stocks. Power Finance Corp saw FII holding going up from 7.75% in Q3FY12 to 9.85% in Q4FY12. Reliance Power sequential FII holding went up from 4.6% to 5.23%, Tata Power rose from 20.04% to 21.87%, Torrent Power rose to 2.46% from 1.87%, NTPC is up from 3.73% to 4.02%, NHPC rose from 1.33% to 1.38%, that of GVK Power rose to 17.98% from 17.30%, Reliance Infra rose from 14.8% to 15.15%. On the other hand, stocks in the sector which saw a decline in FII holding were – Power Grid, from 13.07% to 12.03%; JSW Energy from 3.90% to 3.57% ; SJVN from 1.01% to 0.7%, Adani Power from 10.26% to 9.41% and Lanco Infra from 11.96% to 7.5%.

Basics of investment – buy into companies which makes products that have a huge shortage  in the market, which shows the tremendous demand potential.  We all know and experience power shortages and thus know that this is need for more power to these power companies! The duel between Coal India and power companies has reached its zenith and will soon get resolved. Yes, non-availability of land remains a huge issue and how the Govt gets around this one will be worth watching.