BSE Power Index outperforms Sensex by 3X since 2021

Since 2021, the BSE Power Index has given a return of 147 percent against Sensex’s 48 percent return in the same time, giving threefold return over the benchmark index.

The BSE Power index extended its outperformance over the Sensex to the fourth consecutive year on a surge in investments in the power sector.

Since 2021 the BSE Power Index has given a return of 147 percent against Sensex’s 48 percent return during the same period, giving a threefold return over the benchmark index.

BSE Power Index hit a record high on April 4 at 7,112.42.

This has been a reversal in fortune for the power sector in the last four years as since 2008, the inception of the BSE Power Index, the index underperformed Sensex till 2020.

BSE Power Index vs Sensex

Dharmesh Kant, Head of Equity Research, Cholamandalam Securities, said the underperformance in the previous decade in the sector was due to discoms facing challenges in collective tariff from power consumers, particularly in rural areas. Coupled with power theft, this led to discoms faltering on payment to power producers.

“As technology for producing power from renewal sources like solar and wind became cheaper, government investments in the sector increased, which led to the start of the upcycle in the sector. And paying back to power producers improved operating efficiencies and lower working capital burden for power producers, which in turn led to better profitability for power producers”, he added.

Exploding demand

The power stocks have been rallying on an increase in capex in the sector as the country needs to meet its huge energy demand.

“Based on the current consumption trends and future outlook, India is expected to be power deficit by FY28, which has mainly led to the kickstart of power capex in the country. The huge expansion in capacities will also lead to a rise in capex for transmission lines and substations which may witness more than 50 percent growth in this decade. Future growth of AI and cloud computing will lead to substantial power demand going forward, and thus power sector will be the key beneficiary of all future developmental policies in the field of AI and Automation.” said, Nitin Agrawal, CEO of Torus Oro AMC.

Kant said the outperformance in the power sector is expected to continue as India is adding more capacity to meet the demand. “Power demand in India is also expected to increase as we put more data centres for storage which will need power. Earlier the focus used to be on power generation. Now there is a focus on storage as well. The only limitation is capacity expansion will take some time, he added.