3 power sector stocks likely to gain in 2025 as electricity demand, government support rise
Amid the scorching summer heat, there’s a silver lining for equity investors. Analysts and brokerages expect India’s power sector to see strong momentum in 2025-26. Here’s what’s driving the optimism, and how you can benefit.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
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Summer appears to have set in early this year. February 2025 has turned out to be the hottest month in India since 1901, when the record-keeping commenced. There are expectations of warmer-than-normal days in the upcoming season. A pick-up in commercial and industrial activities is predicted by analysts, which would increase the demand for power. The industrial segment accounts for 50% of India’s power consumption.The power sector is heavily influenced by government policy and the outlook is promising. The Centre’s push for nuclear energy, with a 100 GW capacity target by 2047, is a positive sign. Budget 2025 raised allocations for the PM Surya Ghar Muft Bijli Yojana and the National Manufacturing Mission to boost domestic production of solar (photovoltaic) PV cells, wind turbines, grid-scale batteries, and electrolysers. Meanwhile, falling battery prices are encouraging developers to ramp up capex on solar and storage, adding momentum.
Taking stock
The electricity demand remained volatile in the first 10 months of 2024-25. While the demand growth was good in the first four months of the previous financial year, it moderated in the latter part of the year due to the slowdown in economic activity, unfavourable base effect and the adverse impact of heavy rainfall. The demand grew at 9.9% in the first four months of 2024-25, but registered 4.2% year-on-year growth between April 2024 and January 2025.
Rising electricity demand bodes well for the power sector
This volatility has affected the performance of power sector stocks. The sector benchmark, BSE Power Index, has significantly underperformed the market benchmark in the past six months, with -24.7% returns compared to -9.8% returns by the BSE Sensex. The constituent stocks of the power index have corrected between 13.6% and 51.2% in the past six months. The analysis is based on 1 April 2025 closing values.
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A recovery in the demand for electricity was visible in February and March 2025, with over 6% year-on-year growth. The increased demand led to the surge in prices in the short-term market, growing 6% yearon-year from 1-22 March 2025. The short-term power market helps power generating companies manage short-term demand fluctuations by selling surplus power at market prices. Rating agency ICRA estimates the annual demand growth for 2024-25 to be 4.5%. However, for 2025-26, demand growth is expected to recover to 5.5% and 6%.
Recent brokerage reports from Antique Stock Broking and Motilal Oswal state that growing electricity demand improves the outlook of the power sector. The significant correction in the stock prices has reduced the valuation premium. The price to book value (PBV) of the BSE Power Index has fallen from 4.99 times in September 2024 to 3.7 times in March 2025, according to the BSE data. While most stocks in the sector still trade at higher valuations (in terms of historical perspective), this premium is possibly attributed to the anticipated pick-up in capex and capitalisation within the sector, states the Antique Stock Broking report.
The risks
Delays in signing power purchase agreements (PPAs) are raising concerns over the reliability of EBITDA guidance provided by power generation companies, according to Motilal Oswal. PPAs are long-term contracts under which these companies supply electricity to distribution companies (discoms), mostly public utilities, at fixed rates. The poor financial health of government-owned discoms remains a concern. Besides, transmission infrastructure issues, like land availability and delays in forest clearances, create delays in project execution.Analysts favour Power Grid Corporation of India, NTPC and JSW Energy.
Wired for growth
Power Grid Corporation of India
The story so far
Strong expertise in power transmission projects has helped the firm maintain market share over the past several years.It transmits around 45% of the total power generated in India on its network, and owns 86% of the inter-state transmission system.In the December 2024 quarter, higher operating costs led to weak performance.
What lies ahead
The company’s foray into renewable energy and increasing its capacity offers huge transmission opportunities over the next seven-eight years.A strong project pipeline of Rs.1.4 lakh crore provides healthy revenue visibility over the next three-four years. Additional bidding opportunities in the future will further build up its order book.Its estimated capital expenditure for 2025-26 is Rs.30,000 crore.Analysts’ talk
ANTIQUE STOCK BROKING: Power Grid benefits from low competition in the tariff-based competitive bidding segment. A robust bid pipeline, steady project wins, and strong opportunities in the transmission space remain its key strengths.ICICI SECURITIES: It is poised to be a key beneficiary of renewable energy capacity additions and remains the government’s preferred choice for strategically important transmission projects.
NTPC
The story so far
Maintains a dominant position in India’s power sector and is adding capacities through acquisitions and expansions.Strong business model with thermal capacities backed by long-term PPAs.Is strategically important to the governmentThe December 2024 quarter was good due to the increased energy sales and a fall in interest costs and other expenses.What lies ahead
Plans to increase both thermal and renewable energy capacities.To ensure fuel security, it is aiming to increase coal mining capacity from 40 million metric tonne (MMT) in 2024-25 to 67 MMT in 2029-30.Focusing on the nuclear business (through a JV with Anushakti Vidyut Nigam) and green hydrogen.Analysts’ talk
ICICI DIRECT: Robust capacity additions are set to drive strong financial performance in the medium to long term.AXIS SECURITIES: A strong vendor network creates lower execution risks in setting up thermal projects. Its robust thermal assets provide strong cash-flow visibility. Aggressive renewal power addition targets and stable dividend yield are key positives.
JSW Energy
The story so far
A strong operating track record of the company’s thermal power plants has helped it to report stable cash flows and healthy profitability over the past few years.Its operational capacity has surpassed 10 GW after the completion of the acquisition of KSK Mahanadi Power.The performance in the December 2024 quarter was muted due to lower realisations in the short-term power market.What lies ahead
The company is transitioning from a thermal player to a RE player with assets across energy storage systems and green hydrogen.Cost synergies in its operations and management due to its acquisition of O2 Power (renewable energy player) with assets across solar and wind power.The O2 Power acquisition will create a good blend of solar, wind, and FDRE (firm and dispatchable renewable power) portfolio.Analysts’ talk
AXIS SECURITIES: With 28% of its portfolio in the merchant (short-term) market, the company stands to gain from rising prices. Recent stock price correction and an expected summer demand surge further strengthen the outlook.MOTILAL OSWAL: A key play on rising merchant power prices. Moreover, it is least impacted by PPA delays.
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This story originally appeared on: India Times - Author:Faqs of Insurances
