Power stocks outshine Sensex; Tata Power, REL lead the pack

Power stocks outshine Sensex; Tata Power, REL lead the pack

Mumbai: In the two weeks since the US Federal Reserve slashed a key interest rate by 50 basis points, India’s stock markets have soared with the Bombay Stock Exchange’s benchmark index, the Sensex, rising from 15,940.79 on 19 September to 17,328.62 on 1 October. The Sensex’s 6.16% rise in this period, however, has been overshadowed by the performance of the stocks of power companies. Shares of the two power companies that are Sensex constituents, Reliance Energy Ltd (REL) and Tata Power Co. Ltd, rose by 42% and 19.70%, respectively, in the nine trading sessions in question. And shares of eight other power companies that are part of the BSE 500, the broader index of the exchange, rose 14.87%.

On Monday, REL’s shares closed at Rs1,349.4 each, up from Rs946.1 on 19 September. And Tata Power’s closed at Rs910.8, up 19.7% from Rs760.90. Experts said one reason for the rise of the REL stock was the announcement by the company that its subsidiary Reliance Power would make an initial public offering (IPO) of shares. Reliance Power expects to pick up around Rs14,000 crore from the market through this sale, which would make this IPO the biggest by an Indian company in the domestic market.

“A lot of power companies, such as REL and NTPC, are looking at unlocking value and that is what is driving investors to these stocks," said Sanjeev Aggarwal, director of business development at AES India, a power firm. NTPC Ltd has said it is considering a follow-on public offer. Its shares rose 8.71% between 19 September and 1 October, from Rs189.50 a share to Rs206.

Analysts said the positive market sentiment has rubbed off on stocks of all power firms, across businesses such as generation, distribution and engineering and process contractors. “There is a lot of buzz around the sector with the public issues like ours and those of Power Grid Corp. and the NTPC follow-on offer. With the two ultra mega power projects, Sasan and Mundra, as well as the other power projects taking off, the order books of equipment suppliers such as Bhel, Crompton Greaves and Areva are full. All this is attracting a lot of attention to the sector," said Lalit Jalan, a director on the board of Reliance Energy.

Shares of Larsen & Toubro Ltd (L&T) and Crompton Greaves Ltd, equipment suppliers to power firms, also went up in this period: while L&T shares gained 5.43% rising from Rs2,669.75 a share to Rs2,814.60, Crompton Greaves’ shares rose 9.23% to Rs346.60.

A recent survey of chief executive officers conducted by industry lobby Confederation of Indian Industries says 67% of the respondents saw the power sector as a destination for potential investment. The current regulatory environment is also seen as being conducive to investments in the sector, said an expert. “At least half the 11th Plan projects have begun construction or have ordered long-lead items. There have also been reforms in transmission with open access which makes for freer trading of power. Today, a power generator can pre-sell all the power that it will begin to generate only three-four years from now. This has encouraged private investors in the sector," said P.K. Patnaik, an independent power analyst based in Delhi.

Unlike in the 10th Plan (2002-07), when the government executed only half the planned power projects, only six months into the 11th Plan (2007-2012) it has already placed orders for long lead time equipment (equipment which takes a long time to deliver) for 48,000MW of the 78,000MW of generating capacity that is to be added over the next five years. “This is being seen a huge upside by the industry and is attracting a lot of new interest," said Prashant Dugar, a power sector analyst at Infraline Energy, an energy consultancy.