China's all-powerful economic planning agency waded into the country's power crunch on Wednesday, attempting to reassure residents and businesses in areas hardest hit by shortages that it has the coal use and supply situation under close watch. The state planner, the National Development and Reform Commission (NDRC), said it has asked local governments to closely monitor coal use and stocks at power plants and to improve fulfilment of medium and long-term contracts to supply thermal coal.

A shortage of coal supplies, toughening emission standards and strong demand from manufacturers have pushed coal prices to record highs, sparking widespread curbs on usage while dimming the economic growth outlook. Power stocks have been rallying in trade fuelled by the global energy shortage.

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In an interview with CNBC-TV18, Harshvardhan Dole, vice president of institutional equities at IIFL, said, “The rally in the stock prices is on account of two or three fundamental issues. Firstly, the Indian power companies by and large operate on a phased hourly model, whereby all the input costs are passed through and these companies earn a fixed rate of return, to that extent these remain by and large insulated from volatility of the underlying coal prices. So, to that extent, the rally in the coal price has not affected them to a great extent. Secondly, if you were to look at the macro developments, which have happened in the last one months’ time, it is confidence-boosting for the entire investment community. For example, the government has taken a bold step and removed the tripartite agreement, never in my understanding in the last decade or so such a bold step was taken by the government of India. This in my opinion goes a long way to assure the investors that the government is quite serious in terms of implementing the policies.”

On Coal India, Dhole said, “I don’t cover Coal India but in general strong dividend yields which these PSUs offer, are indicating that there is no downside and there is more upside for the PSU as a basket.”

On Tata Power, he said, “That is one stock that we like, mainly because they are taking pragmatic measures to ensure that the opportunities which are arising from green energy, they are well-placed to capture that. For example, they are quite gung-ho on establishing or expanding their renewable portfolio. They are also quite aggressive in terms of tapping the elite opportunities coming from EVs, such as EV charging, smart metering etc., which we are not seeing in other private players. These steps that they are taking point us to believe that it is more of a structural story, which will pan out over the next three to five years, rather than in the next couple of quarters.”

On power stocks, Dhole said, “From generation perspective, we continue to like NTPC. If the renewable theme has to actually play out, then Power Grid is one of the biggest beneficiaries, because it will have to lay the transmission line, and it will have to carry the power which has been generated by these green plants, we like that. In terms of the private utilities, we like CESC and Torrent Power the most, given that they are more distribution centric and these companies are one of the best placed companies in terms of distribution reforms if they play out their revenue models. So that is how we are playing the sector.”

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(With inputs from Reuters)

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Also Read: China seeks to calm power supply fears as crunch bites

(Edited by : Dipika)

First Published:Sept 29, 2021 11:16 AM IST