The Hindu Business Line : Power stocks gain on strong growth data

Power stocks were up on Friday after the IIP figures said the sector output grew 9.8 per cent in February compared with 3.3 per cent growth achieved during the same period of the previous year. The BSE Power Index shot up 2.5 per cent, outperforming the benchmark index.

Analysts said the sector is domestic demand-driven, which would continue to grow into the long-term too.

According to Mr Gul Tekchandani, an independent equity strategist, the country is and will remain power deficient. Hence, short-term blips are not long-term guide. According to Mr Arun Kejriwal of KRIS, trading excesses and over-valuations had already been corrected. “Availability and high prices for coal, the main input for the local power generation companies, continue to be a serious concern. But, no company that is currently generating or distributing power is making any loss. This sector is known for a history of steady and decent return,” he said.

After recent correction, many brokerages had gone underweight on the sector. But now a few brokerages have started giving aggressive recommendation on specific stocks. BNP Paribas, however, recently has turned “overweight” on the sector, as valuations in most cases have become reasonable. Motilal Oswal and Kotak Securities have renewed buy calls on Tata Power and NTPC, respectively.

Tata Power Co finished with a gain of 4 per cent while CESC was up 3 per cent and Reliance Energy gained 2.4 per cent. NTPC closed up 1 per cent.

Bumi Resources

Bumi Resources, in two coalmines of which Tata Power had 30 per cent minority interests, has recently reported significant increases in assessed reserves, rise in annual production and indicated expansion.

According to Motilal Oswal, the entire offtake agreement is from the KPC mine, which is currently the largest coal mine for Bumi Resources in terms of proven and measured resources. “This we believe is positive for Tata power, given its strategic stake in the largest exporter of mine in the world.” The company realised $1.2 billion from the stake sale in KPC and Arutmin mines to Tata Power, which it utilised to pay its long-term debt.

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