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Power stocks may fall further, say analysts

Power stocks may fall further, say analysts
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First Published: Mon, Feb 11 2008. 11 05 PM IST
Updated: Mon, Feb 11 2008. 11 05 PM IST
Mumbai: The weak debut of Reliance Power Ltd on the Bombay Stock Exchange (BSE), at a 17% discount on Monday, does not augur well for power sector stocks, say analysts.
Indeed, Reliance Energy Ltd, the Anil Dhirubhai Ambani Group flagship that holds 45% stake in Reliance Power, fell by 19.4% to close at Rs1,582.30 a share. Tata Power Ltd fell 14.8% to close at Rs1,140.15 a share while NTPC Ltd, India’s largest power generation company, fell 6.74% to close at Rs189.60 a share. Both these stocks had touched their highs of Rs1,641 and Rs291, respectively, during the run-up to the Reliance Power’s public float.
BSE’s power sector index fell 321.65 points in Monday’s trade. It has lost 972.66 points since its November launch and 1,448.45 points since touching a high of 4,863.11 in January. BSE’s broader benchmark index, the Sensex, has fallen 4,575.86 points since 10 January, when it touched its high of 21,206.77 points.
Analysts said the hype created by Reliance Power had pushed power stocks and that these stocks would continue to see a correction in prices. Harendra Kumar, head of research at online brokerage ICICI Direct.com said: “These stocks will now reach their fair value levels and stabilize there. But, despite the correction, power sector will continue to be in focus and investments will continue to come into these companies as huge capacities are being added.”
Under the 11th Plan, a total of 78,000MW are being added in capacity and of this, 10,000MW will be added by private companies. According to analysts, private firms would require investments worth Rs50,000 crore and of this, Rs12,000-15,000 crore would be equity.
Power sector stocks will continue to see a correction in valuation because of the changing revenue models, said Hitesh Kuvelkar, assistant director research at First Global Ltd, a Mumbai-based brokerage. “Earlier, these companies followed a cost-plus model where raw material and fuel costs were passed on to consumers. But now with the government calling for competitive bidding, we cannot clearly evaluate the risk of fuel and raw material costs anymore,” he said.
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First Published: Mon, Feb 11 2008. 11 05 PM IST