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Early monsoon may dent power cos earnings in near-term, say analysts
In a recent report, the brokerage pointed out that energy supplied slipped around 1.5 per cent year-on-year (Y-o-Y) in the April to June quarter of the current financial year (Q1FY26), the first decline seen in Q1 since FY16 (barring Covid-19 impacted FY21).
This, the report added, was on the back of 60 per cent days in Q1FY26 seeing above normal rainfall, dipping the mercury. Conversely, there were only 12 days in which both maximum temperature and humidity were above normal levels. With this, peak power demand in May 2025 cooled off significantly to 231 gigawatts (GW) - off from the previous high of 250 GW hit in May 2024 (down 7.5 per cent Y-o-Y)
"These trends point towards the halo of cooling requirement on power demand, which is only set to grow in the future. Given the volatile nature of weather-driven demand, this could pressure the financials of high-cost players in lean years, with them having to opportunistically play the merchant market during peak times to salvage their returns on equity (RoEs)," SBI Capital said.
On the bourses, shares of companies involved in power generation have witnessed a mixed performance in Q1FY26. For instance, NTPC shares have declined over 6.4 per cent during the same period. JSW energy and Torrent Power have witnessed a similar downward trajectory, with stocks touching all-time low levels earlier this year, before erasing those losses due to the broader market revival.
By comparison, the BSE Sensex index has jumped by nearly 8 per cent during the period, while the BSE Power index has underperformed the benchmark, rising by 5.2 per cent.
Going ahead, analysts believe changes in weather can impact cooling demand greatly in the future. This means that volatility in power demand is set to increase, posing a challenge to both power generation and distribution companies in accurately forecasting the same and ensuring projects remain viable through lean periods.
"Although the overall outlook for the power sector remains optimistic, supported by rising demand and sectoral tailwinds, the near-term outlook might witness pressure due to uneven weather conditions," concurred Kranthi Bathini, director of equity strategy at WealthMills Securities.
As a strategy, he suggests investors take a buy-on-dips approach while the near-term headwinds play out. For the long-term outlook, investors might look to switch to an accumulate stance. The industry consolidation period is likely to wind down in the coming quarters, he said.
Long-term plays
That said, from a long-term perspective, analysts remain optimistic about the power sector's outlook, backed by structural tailwinds like rising power demand from data centre buildouts in the AI space.
"Near-term headwinds might prove temporary, as several strong stocks have shown fresh breakouts on the charts after a period of consolidation. Plus, foreign institutional investors (FIIs) have also increased their holdings in power stocks, signalling a prospective rebound," said Ravi Singh, senior vice president for Retail research, Religare Broking. "The longer-term outlook looks quite bullish to me," he added.
Notably, the International Energy Agency's (IEA) Global Electricity Outlook 2025 report said that India's electricity demand is projected to grow at an average annual rate of 6.3 per cent over the next three years, stronger than the 2015-2024 average growth rate of 5 per cent.
Rating agency Icra, meanwhile, anticipates India's overall energy demand to rise by 6-6.5 per cent over the next five years, driven by the demand from rising adoption of electric vehicles (EVs), green hydrogen (GH), and the increase in data centre capacity.
"These three segments are expected to contribute to 20–25 per cent of the incremental demand over the next five-year period from FY26 to FY30," the agency said.
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