Valuations, demand recovery may fire up power stocks

Utilities in the power sector present an interesting investment case at this moment.

- DEVANGSHU DATTA

Most power stocks have lost substantial ground in the past 12 months. FY25 results were moderate and Q1FY26 results were poor, with lower-than-expected peak and base demand.

A recovery in demand in H2FY26 could trigger investment interest at current, reduced valuations.

Amidst long-term trends, there are plans to increase coal thermal capacity and also a pickup in battery energy storage systems or BESS (and pumped storage plants or PSP) to meet long-term peak demand as more intermittent renewable capacity is wheeled onto grids. The dependence on external components for BESS and solar also implies India is exposed to geopolitical, supply-chain risks.

The demand weakness of FY26 till date has been weather-induced with excess rains leading to lower cooling needs. The long-term demand trajectory remains strong. Projects under planning and in various stages of progress indicate coal thermal will add 86Gw between FY25-35, up from earlier estimates of 68Gw. Equipment ordering for at least 26Gw of this capacity may take longer than estimated, extending timelines.