Watt a turnaround. Indian Power Sector: How to analyse and pick the best stocks

From ‘battery critically low’ in the previous decade, the sector appears better charged now

"A little over a decade back, the Indian power sector looked like one of the most interesting investing opportunities. Expectations of high growth, huge power deficits and grand government plans for multiple ultra-mega power projects (UMPP) attracted large investments from Indian business houses and international private equity giants.

But then, the sector got short-circuited. Everything that could go wrong, went wrong — lower than forecast economic growth, overzealous bidding for projects, significant currency depreciation and higher interest rates that resulted in project costs going way out of budget, lack of fuel supplies, and discom issues. All combined, resulted in a massive outage in the sector for over a decade. Many projects ended up unviable and landed in bankruptcy courts. From its earlier peak in 2008, the BSE Power index was down by 60 per cent by January 2020 (prior to the Covid crash) compared to the Sensex rise of over 100 per cent.

However, post the Covid crash of March 2020, the sector has seen a significant turnaround. From Covid lows of 1331 the BSE Power Index is up 247 per cent as against Sensex gains of 120 per cent. The index even crossed its 2008 peak in August 2022. What has been driving this optimism in the sector? It can be attributed to many factors — supportive fiscal/monetary policies driving economic growth, shakeout in the sector resulting in strong players emerging stronger and weak ones getting weeded out."

It is a long article. I suppose as it relates to the power companies, it has a bearing on the Power Finance Companies too.