Have Power stocks weakened your portfolio? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Have Power stocks weakened your portfolio?

Nov 25, 2011

Investors having a huge exposure to the once 'sunrise' power sector sector in India have lost anything in the range of 20% to 60% of their investments over the past 4 years. During this time, the benchmark BSE-Sensex shed 17.4% of its value. Hence, most power sector stocks have not just disappointed investors in terms of failure to be the major wealth creators but they have also underperformed against the benchmark indices.

Data source: Yahoo Finance

Supplying electricity to the world's 5th largest energy consuming economy and 17% of the world's population, the Indian power sector has dominated policy making, investments and reforms over the past decade. Consecutive 5-year plans have focused on this sector as a game changer for India's long term future. However, nearly a decade after the Electricity Act got instituted in 2003, the power sector in India continues to remain a victim of humungous transmission and distribution losses. Conceptualization of several Ultra Mega Power Projects (UMPPs) and setting up dedicated power financing, power transmission and power trading companies over the years seemed the perfect set up for a major overhaul. However, fuel scarcity, land acquisition and more importantly policy inaction have paralyzed the growth prospects for the sector.

Despite keen interest from private sector for investments in the power sector, neither power generation nor its transmission and distribution have had any encouraging tales. 65% of India's power generation is coal fired. Scarcity of coal for new capacities, mining loopholes, poor coal linkages and expensive import costs has rendered projects unviable. State Electricity Boards (SEBs) that were supposed to spring back to health after the Electricity reforms are once again bleeding to death with T&D losses. State governments or PSU banks will have to write off loans going into billions for these entities to get back on their feet. At such times, one would indeed wonder if the sector or its major players deserve to be in one's long term investment portfolio.

Without denying that clarity on the reforms and policy front are pertinent for the power sector to recover, we believe that every risk can be priced into a stock. The power sector is instrumental to the growth of the Indian economy and its long term interests are tied to India's economic well being. Hence the recovery of the sector is a question of not if but when. We do not think that from the current levels, power sector stocks in India, especially the few well managed businesses, will have significant downsides. In fact, with adequate margin of safety one can certainly hope that some of these will be the dark horses in the portfolio in the longer run.

Equitymaster requests your view! Post a comment on "Have Power stocks weakened your portfolio?". Click here!

1 Responses to "Have Power stocks weakened your portfolio?"

Dara Kalyaniwala

Nov 30, 2011

I believe that growth of Power Sector will be the KEY to growth of other Industries in India. Hence it is SHOCKING to find that there are no encouraging tales in the Power Sector.
Which do you think are the dark-horses of the power sector? Will Companies like Orient Green and IndoSolar do well? Somehow I am not attracted to Adani Power and Reliance Power. Will Tata Power do well? Even if it is expected to do well, Tata Power cannot certainly be caleld a "dark horse". So which companies in your view demand investor attention at this point?


Dara Kalyaniwala

Like (1)
Equitymaster requests your view! Post a comment on "Have Power stocks weakened your portfolio?". Click here!

More Views on News

Power Grid Delivers Results for March Quarter. Board Approves Bonus Issue (Views On News)

Jun 18, 2021

Shares of Power Grid fall 3% after posting quarter four results.

CESC Shares Gain 6% on Good Results and Stock Split (Views On News)

Jun 17, 2021

CESC share price hits fresh 52-week high on the BSE today.

Reliance Power Hits Upper Circuit. Board to Consider Raising Funds (Views On News)

Jun 10, 2021

Reliance Power to seek board nod to raise funds via equity issuance.

Tata Power's Major Contract from NTPC Puts Stock in Focus (Views On News)

Jun 3, 2021

A quick look into Tata Power's massive contract win today.

What's Fueling the Rally in Adani Transmission Shares (Views On News)

May 22, 2021

With this week's rally, Adani Transmission became the second most valuable company in the Adani group, surpassing Adani Ports.

More Views on News

Most Popular

Hotel Stocks Will Reward Investors (Fast Profits Daily)

Jun 8, 2021

This is why I'm bullish on the hotel and hospitality sector.

My 'Unlock' Investments (Fast Profits Daily)

Jun 11, 2021

The best unlock investments you can make in the market.

The Most Visible Sign of India's Revival is on Two Wheels (Profit Hunter)

Jun 9, 2021

Investing in the best stocks could result in wealth compounding on a massive scale.

How I Discovered a 400-Year-Old Open Secret to Extreme Wealth (Profit Hunter)

Jun 11, 2021

Charlie Munger's open secret about investing success.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Jun 18, 2021 (Close)