PSU banking, housing finance, insurance stocks should do well

With most of India’s 135 coal-fired power plants having fuel stocks of less than 3-4 days, the country battles one of its worst power supply deficit in decades. India is one of the world’s largest producer of coal, but due to a massive surge in power demand, supplies by Coal India are not enough to match the sudden demand. The company had stopped online auctions of coal and temporarily halted supply to non power customers to tide over the low coal stock situation. But the government is using all methods to ease the crisis and improve supplies and keep power plants running. According to Coal India, the primary reason for the sharp depletion of fuel stock at power plants has been the scaling down of generation by the 14 imported coal fuel led power projects due to the sudden spike in global coal prices. As a result, the demand for electricity has to be serviced from domestic coal fuel led power projects.
Economists view the current energy crisis and the current spike in prices of fossil fuels due to a significant growth in LNG demand and reduced use of coal in China. Moreover, gas prices have climbed up due to reduction in global supply and cut in natural gas production leading to tightness in the global LNG market. Hence, as a result of high gas prices , countries like China and India have shifted back to coal in spite of their international climate change commitments . Indian State government officials have claimed that there are no outages in spite of low coal stocks at power plants and the energy deficit has narrowed down significantly. This is reflected in the average spot prices coming down from of Rs 14 per unit a week back to Rs 9.67 per unit on Friday last. Non power consumers industries like aluminium, paper and cement companies have also applied recently for easing in curtailment of power supply. Therefore, metal and cement companies expect prices to go up as importing fuel would raise costs. Seeing the current situation, the ministry has issued a directive to Coal India to regulate the supply to the above mentioned non power units and ease the restrictions in the next week or so. The government expects the average inventory of coal stocks at power stations to reach comfortable levels in the next week or so on the back of additional railway rakes deployed to transport coal to power plants. Plus, a dip in night temperature and the three-day holiday Dussehra weekend also should make situation comfortable. While the stock markets are on a roll and scaling new highs every day, equity analysts are betting on stocks from the PSU banking, housing finance and insurance sectors to do well at present. Equity analysts are suggesting investors to purchase stocks like Bank of Baroda, New India Insurance and LIC Housing Finance.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.