The Hindu Business Line : Power stocks sparkle, report huge volumes

Reliance Energy, the promoters of Reliance Power, gained 6.42 per cent. CESC moved up by 3 per cent and Tata Power around 4 per cent. The biggest gainer was Torrent Power, which went up by 20 per cent.

Momentum play

All the stocks clocked huge volumes. However, in terms of delivery ratio — deliverable quantity to traded quantity — CESC had over 59 per cent, highest among the lot. It was followed by NTPC and Tata Power, around 44 per cent each and REL around 33 per cent. Torrent reported the lowest delivery ratio of about 25 per cent.

According to Mr V.K. Sharma, Head of Equity Research, it is a short-term momentum play, not a power play backed by accepted valuation metrics such as one-year forward earnings growth.

“An artificial demand has been driving the power papers. The market’s irrational exuberance is not sustainable even in the medium term. But in the short-run, the hyped up craze for Reliance Power may see record over-subscription and in record time,” said an analyst with foreign fund house.

According to Mr Rajesh Agarwal, Director Research of CD Equisearch, the long-term scenario remains bullish for the sector. “Strong demand growth for power on the back of growing economy and absence of generation capacity additions in the past have resulted in high level of peak power deficit.

Distribution network

The industry, apart from bridging demand-supply gap and meeting future demand growth, also has a task of taking the power so generated to the load centres and the end consumers.

Given the ageing and less efficient distribution network, the modernisation of it will be a big and challenging opportunity open to power sector players too in the few years.

“The industry players, backed by assured returns, the long-term outlook remains positive,” he added.