There is a lot of hullabaloo about the valuation of power stocks in the Indian stock market. Being bullish (earlier post: here and here) in this sector made me to have a rethink. The power stocks passed a long period of sluggishness due to some archaic laws . There is a severe shortage of power in our country and with very conservative estimate the supply shortage to demand will remain until for at least another decade. Now government is putting emphasis on infrastructure and power. Logically power stocks are best bet to invest with a long term horizon.
The valuation of REL, NTPC, Power Grid, Tata Power are in the forties of their annualized sustainable earnings. Neyveli Lignite Corporation, Gujarat Industries Power Company, Lanco Infratech and GVK Power have higher valuations than a year ago. Power equipment manufacturers like BHEL, Cummins, Crompton Greaves are also have high valuation.
It seems that the power sector is in a different platform right now, which reminds me of the IT stocks a year back. The IT stocks justified their high PE with sustained earnings for a long period. Can the power stocks repeat the feat of IT stocks? Debatable! May be power stocks may correct to some extend in the days to come and to me that will be an opportunity to pick up some value stocks for some long term investment.
Some really attractive IPOs are coming in this sector. Reliance Power, NHPC and REC will present small investors a chance to pick them up at good valuations.
What about the recent listing Surjyachakra Power and IndoWind Energy? Surjyachakra Power has a tie up with a Chinese company to for a coal-fired project in Orissa. They are also good pick for small investors as they still have to find their groove in Market.
One should not worry for the power stocks in their portfolios as they are long term winner and outperformers in Indian Stock Market.
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