Reasons behind the Power Stocks Rise?

In recent times, the stock of power and energy companies across the country has witnessed an uptrend. For example, the BSE Energy Index has touched an all-time high this year (52-week high), 8013.16 points for the first time ever. It continues to move upwards despite the prevailing volatility in the market. The march was headed by hardwearing Reliance Industries which went up almost 1%, followed by Coal India, OIL, GMDC, and IOC that witnessed an increase of nearly 5% in the last week of September. Though this kind of upsurge is usually seen before the commencement of the winter season due to an increase in power demand but what’s reasons behind the Power Stocks rise at this point in time. Get to know it right here in this post.

Reasons behind the rise in the stock prices

The upsurge in commodities such as coal and the associated stocks like Coal India, Tata Power, and NTPC is due to an increase in demand and a reduction in supply. Let’s get to know more about reasons behind the Power Stocks rise below:

A surge in demand from European countries: One of the major reasons behind the surge in power and energy stocks is the increase in demand for power in developed regions like Europe. With highly effective vaccination drives across the country and gradual resumption of the economy all over the world, the statement of pent-up demand has driven the energy prices up. This combined with the imminent winter and holiday season too has led to higher demand for power and fuel ingesting.

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China energy issue: The prevailing energy crunch in China due to lesser supply is due to the Chinese Government policy on lessening carbon emission. However, more than half of China’s energy consumption sources from coal. Considering the high demand due to the upcoming winter season, there is a sharp coal shortage in the nation.

As the country is already on the verge of an acute power scarcity, it is ready to source coal at any value. And with the winter season in lurking on us, the demand for coal has increase in China to 2.1 billion tons which can be compared with 2.5 billion tons of oil.

In the meantime, to keep up with the energy demand in Europe, various nations are trying to get their get their shares of coal before China, which has further increased the price of coal worldwide. this is one of the important reasons behind the Power Stocks rise.

Supply deficiency in India: While India’s Coal India is very much capable of fulfilling both domestic and global demand of coal, it is not able to maintain enough supply of coal at this moment. In addition, given the point that various states in India are resuming, the demand within the country has also increased. This has led to a surge in power and energy stock prices. As per the data released by the Government, the demand of power in the regional sector has gone up more than 10 per cent in July and 18 per cent in August this year as compared to the same period in 2020 on account of a rapid reflexion in economic activities.

Increase in crude oil prices: Another major reason behind the increase in power and energy stocks is the sharp rise in the prices of crude oil with Brent soaring around $78 per barrel. This surge is considered the biggest since October 2018. The advantage in crude is complemented by a scarce supply in the market. A much better recovery in economic chores in the country has also pushed the increase in crude oil prices. As per various reports, Goldman Sachs supposes Brent to be hovering somewhere between $80 and $90 per barrel considering the latest increase.

How it is impacting stock investors?

According to the top brokers in India, this surge in energy and power stock is short-liven.

Energy disaster: A large number of industrial and commodity specialists think that entire Asia including India doesn’t have enough stock of coal to meet the increasing demand in the upcoming winter season. For example, the supply from leading coal supplying nations like Indonesia and Columbia has reduced due to incessant rains and floods there. And rising supply in an immediate basis will be harder for the coal mining firms. India is also poised to stare at the overseas supply of coal to meet its rising power demands.

Therefore, in a short period of time, the energy and power stocks, including Tata Power, Reliance Industries, GMDC, Coal India, and NTPC, could embrace a surge, until the supply related issues are over.

Crude oil effect:  Given the global shortage of crude oil, the price surge usually works in favour of the oil extractors. These companies are inclusive of BPCL, IOCL, BPCL, ONGC, and Reliance Industries.

According to the best broker for trading in India, it is important to note that these stocks may surge or decline depending on the particular company’s pros/cons as well. For example, Tata Power has been witnessing an increase in the past few months due to the speculation of a renewable IPO, expectations on CGPL merger contract and information on debt restructuring campaigns. Likewise, the stock of Reliance Industries is supposed to be on an upward route due to Reliance Jio’s inclination towards the embracement of digital ecology, Reliance Retail growth forecasts and expansion strategy and the company’s future investment strategy in the energy domain.