 "Renewable energy")
Rapidly growing climate awareness and the government’s increased focus on the renewable energy sector have kept analysts upbeat on this space, which they believe is a long-term structural investment theme.
This, they say, is despite the near-term hiccups that the country will likely face in the adoption of clean energy sources due to the current global macroeconomic headwinds.
“We are positive on this sector as India has been firmly working towards green energy. Due to the Ukraine war, the transition will see some delays but once the global situation improves, it will be very beneficial for us,” said AK Prabhakar, Head of Research, IDBI Capital.
As per the government, the country’s renewable energy capacity (especially wind and solar) has strongly grown at an average CAGR of 15.6 per cent from 39 GW in 2015 to 110 GW by 2022.
Meanwhile, at the recently concluded 27th United Nations Climate Change Conference (COP27) in Egypt, the government doubled down on its clean energy goals as it unveiled India's multi-pronged strategy to achieve low-carbon growth.
Besides the focus on renewable energy for the development of low-carbon electricity systems, the government’s ‘long-term low-carbon development strategy’ emphasised on low-carbon transport to be driven by the use of biofuels, especially through ethanol blending with petrol, higher electric vehicle (EV) penetration and increased use of green hydrogen.
“India’s commitment towards reducing its carbon footprint has led to a lot of interest in the renewable energy space. This is one of the long-term structural stories like that of defence and banking,” said Gaurav Dua, Head of Capital market strategy, Sharekhan.
To play this theme, he observes, investors have been betting on stocks in the ethanol, EV space and ancillary players in the solar, wind, and hydropower segments.
Some stocks, which had run ahead of their short-term fundamentals last year, have now declined. So, investors should pick stocks selectively, he said, listing Tata Motors, Sundaram Fasteners, Globus Spirits, Balrampur Chini and Greaves Cotton as his top picks in this theme.
That said, the government’s production-linked incentive schemes for solar equipment, battery storage systems and subsidies for electric vehicles have also expanded the opportunity pool beyond power generation.
“Several positive factors, such as reasonable economics and government incentives make us believe that Indian companies will be able to participate in the solar opportunity. We don’t see ambition or capital as a constraint for them with players such as Adani Solar, Reliance Industries and Tata Power Solar keen on the space,” said analysts at Kotak Institutional Equities.
Among the big names, Reliance and Adani group subsidiaries–Reliance New Energy Solar (RNES) and Adani Infrastructure–have received government nod under the first tranche of solar photovoltaic (PV) module production linked incentive scheme (PLI) worth Rs 4,500 crore.
RNES and Rajesh Exports were also selected under the Rs 18,100 crore-advanced chemistry cell battery storage PLI scheme.
Though Prabhakar of IDBI Capital prefers Tata Power, which has a 35 per cent renewable power capacity and hydropower major NHPC over the Adani-Reliance duo to play the green energy story. While Jefferies notes NTPC, Power Grid, and JSW Energy as its top picks for this space.
At the bourses, shares of companies such as NHPC, KPI Green Energy, Inox Wind, and NTPC have rallied up to 52 per cent so far this year since April. In comparison, the BSE Sensex is up around 5 per cent during this period.
