Power Stocks: Key Drivers

Power stocks in India have seen strong gains recently, driven by reforms, rising electricity demand, and infrastructure growth. Government support and a shift towards renewables are also boosting investor interest. This article highlights the key factors behind the rally and what it means for the sector’s long-term outlook.

The power sector forms the backbone of India’s industrial and economic development. It includes companies involved in:

• Generation (thermal, hydro, nuclear, and renewable)
  

• Transmission (inter-state and intra-state power lines)
  

• Distribution (discoms supplying electricity to end-users)
  

This ecosystem is regulated and supported by central and state agencies, making it a critical part of infrastructure development.

Here’s how multiple economic, policy, and industry-specific tailwinds have combined to fuel the rally in power sector stocks:

Rising Demand for Electricity

India’s power consumption continues to grow due to:

• Expanding industrial and manufacturing activity
  

• Urbanisation and housing electrification
  

• Growth in digital infrastructure and data centres
  

Peak electricity demand reached record highs in recent months, creating upward pressure on generation capacity and pushing up stock valuations of power producers.

Government Policy Support

Policy measures have played a pivotal role in boosting investor sentiment.

Key Reforms Include:

• Ujwal DISCOM Assurance Yojana (UDAY): Aimed at financial turnaround of distribution companies
  

• Revamped Distribution Sector Scheme (RDSS): ₹3 lakh crore scheme for loss reduction and modernisation
  

• Production Linked Incentives (PLI) for solar equipment manufacturing
  

• De-licensing of power distribution in some segments

These initiatives reduce risks in the sector and attract institutional capital.

Renewable Energy Push

India is committed to meeting ambitious renewable energy targets:

• 500 GW of non-fossil fuel capacity by 2030
  

• Solar and wind power expansion across states
  

• Green hydrogen and battery storage projects on the rise
  

This has led to a surge in the stock prices of companies focused on solar and wind energy, or those pivoting towards greener models.

Reforms in Power Distribution

Historically, state discoms have been a drag on sector performance. However, reforms like:

• Prepaid smart metering
  

• Power purchase agreements (PPAs) renegotiation
  

• Payment security mechanisms for generators
  

have helped improve cash flows and reduce transmission and distribution (T&D) losses, indirectly supporting stock performance.

Shift Towards Electrification

With sectors like automotive shifting to electric mobility, demand for grid expansion and reliable supply is growing.

This has pushed up interest in stocks of companies building transmission lines, transformers, and renewable capacity to support EV infrastructure.

Improved Financial Metrics

Power companies have improved their balance sheets by:

• Reducing debt
  

• Improving return on equity (ROE)
  

• Signing long-term contracts for energy supply
  

This has translated into better quarterly results and attracted more institutional and retail interest.

Understanding the sub-segments helps identify companies with better growth potential within the broader sector.

Companies in the power sector have shown:

• Stable or rising EBITDA margins
  

• Better utilisation of existing capacity
  

• Falling cost per unit of renewable energy
  

• Higher demand for long-term power purchase contracts
  

These financial improvements support investor interest and stock price appreciation.

While the outlook is promising, there are some risks to keep in mind:

Balanced exposure and regular monitoring of developments are advisable.

Large institutional investors (both foreign and domestic) are increasing exposure to:

• PSU power generators and transmission companies
  

• Renewable energy players
  

• Infrastructure firms in grid modernisation and storage
  

Retail investors too are actively trading in these stocks due to clear narratives and strong earnings momentum.

Power stocks are rising on the back of reforms, rising demand, and the clean energy push. With ongoing infrastructure investment and focus on energy security, the sector shows long-term growth potential—though regulatory and execution risks persist.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.