Energy Sector Investment:The major change in the energy sector has been an important factor in taking India towards a developed India. As economies are developing and per capita GDP is increasing, energy consumption is also increasing. In such a situation, the focus of governments has also increased on the sector. In India, reforms are being made continuously by the government regarding the energy sector and concessions are being given. While this has increased growth opportunities for the companies working in the sector, investors have the opportunity to benefit from this growth. Sanjay Chawla, Chief Investment Officer Equity, Baroda BNP Paribas Asset Management India, has given detailed information about why this sector is attractive for investment now.
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Government initiatives in energy sector
In the last 10 years, the government has made many reforms in the energy sector. These include remunerative pricing for exploration and production, reforms in gas pricing, windfall tax, strategic capital allocation, support for oil marketing companies (OMCs), stability in oil and refining margins, unified gas transportation tariff and investments in gas infrastructure. Includes increase. All these measures have contributed to making the energy sector an attractive sector for investors.
Better opportunities for energy companies too
The transformation taking place in the Indian energy sector is creating multi-decade business opportunities for companies involved in the energy value chain. Huge investments are being made to double the installed capacity from the current 448 giga watts (GW) to 900 (GW) by 2031-32, within which the total share of renewable energy will increase from 42 per cent to about 66 per cent. Moving towards green transition, solar capacity will increase 4 times from 87 GW in 2024 to 365 GW in 2031-32. Similarly, the installed capacity for wind energy will increase by two and a half times from 47 GW to 122 GW.
(Source: Government of India – Press Information Bureau, Ministry of New and Renewable Energy – PLI, Center on Global Energy Policy – Columbia University, NEP – National Electricity Plan, Inevitable Policy Response\ Data till 5 August 2024)
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Concessions offered by the Central Government
A) US$ 2.85 billion production-linked incentive (PLI) scheme to incentivize manufacturing of high capacity solar PV modules.
B) Viability gap funding of up to US$ 460 million for PLI on advanced chemical cell battery storage and battery energy storage systems with a capacity of four gigawatt hours.
C) PLI and other incentives for electrolyzer manufacturing and green hydrogen production, expected to attract investments of US$ 100 billion.
These megatrends and government incentives provide investment opportunities for a variety of companies engaged in oil, gas and coal extraction, production, transmission, marketing, distribution, equipment and technology suppliers and service providers.
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Energy theme stocks are at attractive valuations
These huge business opportunities across different sub-segments in the energy value chain have created a number of options for investors looking to participate in this emerging structural growth story. These energy themed stocks have given better returns than Nifty 500 TRI in the last 1, 3, 5, 7 and 10 years. A research by Baroda BNP Paribas Mutual Fund shows that despite consistent outperformance, Nifty Energy TRI is trading at very low price to book and price to earnings ratios compared to the average Nifty 500 TRI stock.
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This shows that these stocks provide relatively better value and higher safety margins for investment. Especially when one considers that Nifty Energy TRI stocks have much higher one-year earnings growth per share than their Nifty 500 average counterparts. In such a situation, the year 2025 can be the time to strengthen and activate your investment portfolio with the attractive investment opportunities in this sector.
Energy is the basis of economic activities
Energy is the basis of all economic activities as it is required for the operation of homes, commercial premises and industries. As people’s income increases, they buy more products and services and consumption increases. Due to which demand increases for homes, commercial and industrial purposes. Therefore, production and consumption of energy not only indicates economic development, but also provides strength to this economic development.
(Disclaimer: The advice to invest in stocks has been given by the brokerage house. These are not the personal views of Financial Express. There are risks in the market, so take expert opinion before investing.)
