By Rutam Vora
Having touched some of the stratospheric levels of the stock valuations the power stocks on the Indian bourses are seem to be going de-fused with stock prices coming down heavily over past one year.

In mid-2007 up to early 2008, stock valuations in the power sector have been considerably higher, mainly driven by upbeat sentiment on the new capacity addition by allotment of ultra-mega power projects in the different parts of the country. However the buoyancy could not sustain longer as the power industry too was not spared from the equity market turmoil that hit the streets at the time of global melt-down in the early part of fiscal 2009.

India’s power sector has been characterized by energy deficiency reflecting huge demand-supply mismatch. According to a recent report by Central Electricity Authority (CEA) India has a total power generation capacity of 157,229 MW as of February 28, 2010, of which about 64% is generated from thermal units. The targeted capacity addition for the current fiscal was 14,507 MW under the eleventh five year plan (FYP), of which about 52% or 7510 MW has been achieved till February 2010.

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Although, the power generation capacities have increased substantially in recent years, it has not maintained the pace of growth at par with the growth of the economy resulting into continued power deficiency despite India having one of the lowest per capita electricity consumption levels globally. In fiscal 2009, peak energy deficit was estimated to be at 11.9% and total energy requirement was estimated to be 11.0%. This is expected to rise in the current fiscal.

The widening power shortages created additional burden on the power utilities. The companies have, somehow, failed to meet the investors’ expectations, which was reflected in the stock returns over past one year.

In spite of the robust economic growth is anticipated, there are negative returns in the power stocks on the bourses. Leading power companies have yielded negative returns giving a shock to the long-term investors.

On an average, all major power stocks on the Bombay Stock Exchange (BSE) have depreciated by over 8% over past one year. State-owned National Thermal Power Corporation Ltd (NTPC) (BOM:532555) has sunk the most among others by close to 14% on year-to-date basis. The stock closed its last trading session at Rs.202.75.

Other power majors, including Reliance Power Ltd (BOM:532939) and GVK Power and Infrastructure (BOM:532708) tanked over past one year. Reliance Power fell by over 8.51% to Rs.141.90 in recent trades, while GVK Power tanked by over 8% to Rs.42.75 on a year-to-date basis.

KSK Energy Venture Ltd (BOM:532997) too recorded a loss of 8.14% over past one year and closed at Rs.184.05 on the BSE on Friday, March 19, 2010. However, Tata Power Ltd (BOM:500400) and Torrent Power Ltd (BOM:532779) yielded comparatively moderate returns. Torrent Power fell by 4.3% over past one year to Rs.308.50 in recent trades, while Tata Power was down by 1.5% during the said period to Rs.1357.05.

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Power companies have so far been positive about the overall return to the investors, but looking at the stock movement in past one year, India’s power sector seems to be falling sluggish for returns.

New capacity additions, which are expected to be operational by 2012 and over the years thereby, are expected to bring these power sectors once again on the fore. Some of the newly entrants, like, Adani Power Ltd (BOM:533096) and Indiabulls Power Ltd (BOM:533122) are being looked up for future growth. Some of the power giants planning huge capacity additions over next few years, investors are hopeful for better returns in coming days.


Vora is a special correspondent with Commodity Online News Service

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