Stock markets around the world have been choppy in the recent past over indication from the US Federal Reserve that it intends to continue an aggressive series of borrowing cost hikes until it brings the country’s inflation under control. But economists are worried that this policy approach could heighten the risk of tipping the US economy into a recession. This policy approach of aggressive interest rate hikes undertaken by the US Fed aims to slow down the economy by controlling prices and decreasing demand. Analysts feel that it a risky move, as this could tilt the US economy into a painful period of recession for at least 6-12 months’ time frame. These strong moves of sharp increase in interest rates pose a threat to the stock market because corporate profits could come down drastically. Hence, markets are volatile and stock prices could fall further as they are pricing in a mild recession in the stocks on the back of economy weakening. When there is a recessionary environment, stocks are most vulnerable because corporate profitability is affected. But investors should look at their long term strategic asset allocation position and react accordingly by sticking to it diligently.
The renewable energy sector is a favourite focus of the government and a lot of thrust is being put by companies in the particular industry. The government aims to expand India’s renewable power capacity from 164 GW at present to around 500 GW by 2030. REC or Rural Electrification Corporation Ltd is a Non Banking Finance Company focusing on power sector financing and development with the aim of contributing towards achieving village and household electrification across the length and breadth of the country. In 2019, Power Finance Corporation Ltd or PFC had acquired a 52.63% stake in REC for Rs 14500 crores as a part of the governments consolidation programme. Recently, there was headlines news doing the rounds that Power Grid Corporation of India would be acquiring the REC 52.63% stake from PFC. This proposal was rejected by the Power Ministry and removed an overhang in the Power Grid stock which had lost a whopping over Rs 30,000 crore in market capitalisation last week. Moreover the stock market was relieved that Power Grid would be venturing into the unrelated area of power finance business and going to spend around Rs 13,000 crore in this acquisition . The stock price of Power Grid jumped upwards on the stock exchanges on the back of rejection of the proposal by the power ministry. With the government aiming to expand India’s renewable power capacity, Power Grid should play an important role for grid integration of various renewable energy platforms by implementing high capacity green energy corridors in the country. The company has a robust project pipeline order book of around Rs 52,000 crore and analysts and fund managers tracking the energy sector are quite bullish on the Power Grid stock for over 25% price appreciation in the next nine months’ time frame. Energy sector analysts expect 11% annual expected growth in profit after tax over the next 2-3 years and return on equity of over 20% in the next 2 year time horizon. The Power Grid Corporation stock currently quoting at Rs 212 on the bourses is a very attractive buy for excellent gains in the medium term and a handsome dividend yield of over 6%.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.