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Thursday, March 31, 2011

Lull in Power Sector - time to Buy Stocks?

Just read a news on internet. People in Varanasi got angry and were highly unhappy with government. They had all rights to! Local authorities had a long power cut on the day of India-Pakistan world cup semi final match!

Such is the condition of power sector in India today. You have power shortages across India but demand from power distribution companies is decreasing! Yes you read it right and I am not drunk celebrating Indian victory over Pakistan. Power Sector Stocks are largely affected by this situation and so the lull in Power Sector in Indian Stock Markets.

Root cause is power distribution companies. They buy power from private power generation companies and distribute it across the region.

These power distribution companies in India are mostly state owned entities. They have over 90% share of power distribution market. All these state run companies are running in losses of as much as 21%. And that’s where the problem is. These companies, due to lack of purchasing power for buying electricity from power generation companies, have ability to create the demand but unable to purchase power.

Due to this lower demand, prices of bulk power purchase have reduced and it has ultimately affected power sector stocks in stock market. Now there you are. You got it why am I discussing power problem on IndianStocksNews.com? To take this opportunity and find Good Stocks To Buy from Power Sector for long term when the sector is in temporary trouble. That’s what value investing is all about.

Power generation companies are in discussion with government to break these shackles and revive the demand in power sector. It might take some time but if you have to meet infrastructure demands in India, you cannot ignore power sector for sure.

I think this could be the good time to buy stocks from power sector for long term. I have Reliance Power in my long term portfolio. NHPC and Suzlon are other two good stocks from this sector. One may consider buying stocks of these two companies in small quantities and SIP.

1 comment:

  1. Thats a great advise.

    I have lived in Varanasi and I know how often power cuts happens there. its frustrating.

    ReplyDelete

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