If You Didn't Consider Defence Stocks in 2020, Consider These Stocks Now

Seventeen forest villages in Mohla-Manpur-Ambagarh Chowki district of Raipur, in Chattisgarh, received electricity for the first time in March 2025.

Previously, 540 families in these villages relied on solar panels and lanterns. Many solar installations were either stolen or non-functional, leaving the villagers in darkness.

Electrification of Indian villages has been a long-term story of India's economic potential.

India's per-capita primary energy consumption, about 23% of China and nearly 35% of the global average, must grow significantly to meet the aspirations of its growing economy and population.

But this has been the argument for India's power utility companies for decades now.

The fact that most of power companies are government owned and have track record of poor execution, dented their potential in the stock markets.

So, what is different this time?

Consider these stocks:

Stock A gained 41.1x in 5 years since 2020.

Stock B gained 16.8x in 5 years since 2020.

Stock C gained 16.7x in 5 years since 2020.

Stock D gained 16.1x in 5 years since 2020.

Stock E gained 15.9x in 5 years since 2020.

In other words, each of these stocks fetched compounded annual return of 100% or more during the last 5 years.

Any guess which sector do all these five stocks belong to?

Well, the stocks are Mazagon Dock, Bharat Dynamics, Hindustan Aeronautics, Solar Industries and Bharat Electronics, belonging to the defence sector.

Investors who missed out on these stocks citing scepticism about the poor execution track record of defence sector, high working capital cycle in the past etc, have regretted the decision.

Similar could be the case with India's power generation sector and energy transmission stocks.

The government has cited the 2047 target for every Indian to have access to all forms of modern clean energy. The key growth driver is the rising demand for energy as the Indian economy grows.

Total energy demand is expected to double in 25 years, translating to an increase in per capita energy consumption from 0.43 tonne of oil equivalent (toe) in 2022 to 0.8 toe by 2047.

Meanwhile, per capita electricity consumption is expected to increase from 1,331 kilowatt-hour (kWh) in 2023 to 3,675 kWh in 2047.

The development of India's energy infrastructure will ensure 24/7 delivery of electricity across the country.

The transformation of our rural economy will be possible due to the removal of the developmental gap between the urban and the rural. The power sector will play a crucial role here.

Currently, 56% of rural households rely on traditional biomass, such as wood, dung cakes, charcoal and crop waste, for cooking. The goal is a completely shift to cleaner fuels by 2047 while in urban areas, a 100% switch will be achieved much earlier.

Apart from household demand for electricity, industrial demand will gain prominence over time.

Shift in India's Energy Mix

Energy security continues to play a pivotal role in shaping India's energy transition. India imported 88.9% of crude oil, 43.3% of natural gas and 25% of coal in 2023.

With a greater thrust towards adoption of clean and green fuels, India's consumption of fossil fuels will not see much increase despite doubling of energy demand.

The share of clean energy is expected to increase from 16% in 2022 to 40% of total primary energy mix by 2047, driven by a conducive ecosystem for growth of renewables and other cleaner fuels.

However, a cleaner transition opens mineral security issues. Critical mineral extraction is heavily concentrated around the world.

China supplies 70% of graphite and 60% of rare earth elements today. The Democratic Republic of the Congo supplies 70% of cobalt and Australia 55% of lithium. The concentration is even higher for processing, with China dominating across the board.

India needs to diversify its import basket of countries with strong extraction and manufacturing to avoid shifting from fuel dependency to mineral dependency.

Given the low emissions factor and cheaper technology, natural gas could usher in many benefits especially in rural houses.

From existing reserves, natural gas supply is expected to increase more than 3.5 times by 2047. India's offshore exploration together with the expansion of domestic gas infrastructure will play a crucial role in this regard.

Nuclear technology, a relatively cleaner option which has been neglected for long, will also see significant growth in the future.

Nuclear energy with high plant load factors (higher ratio of actual energy generated) of 80-90% has a critical role to play in providing low-emission baseload power. However, this technology comes with its own risks and long gestation.

Delivering clean power reliably from solar or wind, while keeping pace, needs further attention as it is impacted by infrastructure issues.

Power is the Next Defence

It's not the demand but the pricing of energy resources that is the elephant in the room.

Electricity subsidies offered by state governments put additional burden on the exchequer as also promote inefficient consumption.

Further, cross subsidy distorts the true cost of electricity and puts Indian industry at a disadvantage compared to its global competitors.

Newer delivery models like Direct Benefit Transfer, if implemented in a phased manner, leads to large energy efficiency gains.

The subsidy burden may be reduced with faster penetration of solar rooftops, smart meters, feeder segregation and the modification of consumer demand for energy through various methods and behavioural change.

The NITI Aayog, has developed a roadmap for better energy security for India by 2047. The plan includes several initiatives that could make India's power sector robust, long term sustainable, and relatively less cyclical for investors.

• Strategic Petroleum Reserves (SPR): India has established SPR facilities with a total capacity of 5.33 million metric tonnes (MMT) at Visakhapatnam, Mangaluru to provide emergency fuel storage.
• Grid Modernisation: Strengthening the national grid, implementing smart grid technology, and expanding LNG terminals and pipelines are crucial for efficient energy distribution.
• Energy Storage: Focus on pumped storage projects and Battery Energy Storage Systems (BESS) to address the intermittency of renewable energy and enhance grid reliability.
• Energy Efficient Appliances: Promoting energy-efficient appliances and encouraging green building designs.
• Collaborations: Collaborating with energy-rich nations to ensure stable supplies and leveraging platforms like the International Solar Alliance (ISA) to promote solar energy adoption worldwide.

Several stocks in Indian power sector like NTPC, Tata Power, Indian Energy Exchange, Power Grid and IREDA have been in focus over the last two years. Some have also been very consistent in their dividend payouts for decades.

But their overall wealth creating potential has several sceptics.

Keeping the best power stocks and nuclear energy stocks in your watchlist could be a smart move on your part.

Happy investing.

Warm regards,


Tanushree Banerjee
Editor, StockSelect
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)