POWER STOCKS – IN RESET MODE!

There is a lot of power-packed action happening in the surge power stocks.

The BSE Power index today hit a new 52-week high and of the 11 stocks traded in this index, 9 are up – the only three down are ABB, Power Grid and NTPC.

Adani Power, BHEL, Tata Power, NHPC, Torrent Power hit new highs while Thermax, CESC, KEC, Siemens, Adani Transmission, Adani Green are all trading very strongly in the green.

Not merely technical or speculative reasons, this rise in supported by a bunch of logical reasons.

1: The industry – the entire economy is slowing getting back to pre-Covid levels and the one ingredient which all require by default is power. Thus the surge in demand has made this sector attractive.

2: In FY20, lower electricity volumes from India’s most industrialised states pulled down the annual demand growth to a 6-year low of 1.13%.

3: The sharp rise in temperatures in northern India has pushed up the demand to an average daily power of 3.7 billion units (BUs), up 3.4% (YoY) in February, offsetting the impact of lower demand recorded in the southern states of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu.

4: For six straight months now, demand is on the rise.

5: The rise in demand has led to a spike up in power prices - average monthly price at Rs 3.39 per unit during Feb was up 16% (YoY).  The lower base effect will come into play only from April onwards as the lockdown happened end-March.

6: The price is also rising because the difference between buy and sell bids narrowed down to negative 2,121 million units v/s negative 5,138 million units (YoY).

7: The improvement in energy demand and the reduced generation from hydro and renewables sources have helped the thermal plant load factor (PLF) increase to 61.2% in January v/s 57.7% (YoY).

8: Rating agency Moody’s also upgraded the outlook for the sector, saying that it does not expect any further material deterioration in the cash conversion cycle for the power companies from current levels.

9: With a strong ‘V’ shaped recovery and FY22 GDP expected to in the range of over 10%, naturally, the bodes well for the power sector as electricity demand is only going to go up.