Power stocks surge as government looks to improve liquidity; NHPC, Tata Power, NTPC shares gain

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Updated: Aug 21, 2020 7:35 AM

A day after the Cabinet Committee on Economic Affairs approved the proposal of one-time restructuring of loans to discoms under UDAY schemes, power sector stocks were seen surging higher even amidst a bearish market sentiment.

Since the free power scheme came into effect in 1996, the number of tubewell in the state have risen sharply, from nearly 80,000 pumps in 2000-01 to 14.5 lakh today.The BSE Power index was up 4.25% with all but one constituent trading with gains. The S&P BSE Utilities index too surged higher, helped by power generating and transmission companies.

A day after the Cabinet Committee on Economic Affairs (CCEA) approved the proposal of one-time restructuring of loans to discoms under Ujwal DISCOM Assurance Yojana (UDAY) schemes, power sector stocks were seen surging higher even amidst a bearish equity market sentiment. NTPC was the top Sensex gainers, surging over 6% to trade at Rs 101 per share, while Tata Power stocks gained 7.8%, and NHPC shares jumped over 12% on Thursday. Currently power distribution companies are allowed to borrow only up to 25% of their previous year’s working capital under the UDAY scheme, the Cabinet approved the limit to exceed 25%.

The BSE Power index was up 4.25% with all but one constituent trading with gains. The S&P BSE Utilities index too surged higher, helped by power generating and transmission companies. The Cabinet said that it had approved a “one-time relaxation to Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) for extending loans to Distribution Companies (DISCOMs) above limits of working capital cap of 25% of last year’s revenues under UDAY.” The one-time relaxation was aimed at improving liquidity in  the power sector and ensuring payments by State Governments to DISCOMs.

On the Nifty PSE thematic index, NHPC was up 12.68%, followed by NTPC’s 6.7% jump, and then PFC followed gaining 4.44%. Powergrid was one of the few stocks that were trading with gains on the S&P BSE Sensex. Adani Transmission gained 10% and Adani Power gained over 2%. Adani Green, Torrent Power, BHEL, ABB, SJVN, and Thermax were the other gainers. The S&P BSE Sensex was trading down over 350 points. 

The move comes at a time when the power sector has been dealing with liquidity problems. “The outbreak of the global pandemic COVID-19 in the country and the consequent nationwide lockdown has exacerbated the liquidity problems for the power sector.  Revenues of the power distribution companies have nosedived as people are unable to pay for the electricity consumed while power supplies., being an essential service, have been maintained,” the CCEA said. Power demand has been gaining momentum as India unlocks but still remains low. According to Morgan Stanley Research between August 5-11, power demand grew 3.6% on-year basis. “The liquidity of the power sector is not expected to improve in the short term, as economic activity and power demand will take some time to pick up. There is, thus, an immediate need to infuse liquidity in the power sector for continuation of power supply,” the Cabinet said yesterday.

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