Rs 4,770-crore jolt! Power sector biggest casualty of FPI selling in Q3
FPIs sold power sector stocks to the tune of Rs 2,869 crore and Rs 2,952 crore in October and November, respectively after a massive Rs 9,731 crore selloff in September. Although, they re-entered the sector in December to buy shares worth Rs 1,051 crore.
The power sector has given fantastic returns in the last 1.5-2 years due to a rise in power demand and a change in government policy. Many stocks from the sector have more than doubled during this period.
“When you are sitting on such high profits, then at elevated valuations it’s not worth staying put in the sector. This could explain FII booking profits in power stocks,” A.K Prabhakar, Head of Research at IDBI Capital, explained.
Despite being chucked by FPIs, the power sector stocks saw gains to the tune of 30% in the December quarter. Strong capex cycle, industrial and economic growth, shift towards clean energy along with rising demand for power and various government reforms, such as cleaning up of the balance sheets of DISCOMS and increase in power tariffs, have resulted in re-rating of the sector, which was otherwise stuck in a long phase of consolidation.
Three Adani group stocks were among the top five gainers from the BSE Power index during this period. A clean chit from the Supreme Court concerning allegations by Hindenburg and hopes of the incumbent government coming back to power after the May elections have driven these stocks from their lows.
Shares of Adani Adani Green Energy have surged 62% in the three months ended December 2023, followed by Suzlon Energy and BHEL which have added 48% each. Adani Power has risen 39% and Adani Energy Solutions 30%.
But a host of analysts believe incremental returns are difficult to come from the power sector. If you are looking at the time frame of 6 months to 1 year, the growth is unlikely to catch up with valuations, said Prabhakar.
G. Chokkalingam, founder, Equinomics Research called the sector “overvalued”. “The stocks can correct 10-15% as there is a lack of valuation comfort and no visible triggers. Given it’s an election year, there is unlikely to be an increase in power tariffs or coal prices,” Chokkalingam said.
On the flip side, Kranthi Bathini of Wealthmills Securities said the rally has much more legs and there is further headroom for the power stocks going ahead.
“Given earnings visibility for the stocks, the sector still looks interesting. CG Power, despite the strong rally, and JSW Energy are my top picks,” he added.
(Data inputs from Ritesh Presswala)
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