Energy stocks in India are gradually becoming a popular choice for investors. Over the past few years, India has connected hundreds of millions of its citizens to electricity, prompted the adoption of highly efficient LED lighting in most homes, and encouraged the expansion of renewable energy sources, including solar energy.
As India recovers from a Covid‐induced slump in 2020, it is re‐entering a very dynamic period in its energy development. Thanks to rising incomes and improving living standards, the country consumes a large amount of energy and holds the rank of the third-largest energy-consuming country. This indicates that with increased demand and supply, India’s power stocks are poised to rise.
Considered the fastest-growing economy in the world, business leaders and investors in India are backing up the energy sector stocks in India effortlessly. Therefore, in the blog, we will discuss some key insights about the energy sector stocks in India and why you should invest in them.
What are Energy Stocks India?
According to the International Energy Agency, India is the world’s third-largest energy consumer after China and the United States.
In 2019, the country’s total energy consumption was around 6% of the global total, with Oil, Coal, and Natural Gas accounting for over 80% of the total energy consumed. renewable sources, including hydroelectric, wind, and solar power, generated the remaining 20%.
Energy sector stocks in India include companies operating in the energy industry, such as oil and gas exploration and production companies, energy utilities, and renewable energy companies. These energy stocks India are an essential part of the stock market, as they play a crucial role in meeting the energy needs of individuals, businesses, and entire economies. Thus, energy stocks, therefore, provide investors with the opportunity to participate in a sector that is essential to the economy and has the potential to address environmental concerns.
The importance of the best energy stocks in India lies in the fact that the energy sector is critical to economic growth and development. Therefore, the energy sector stocks in India also significantly impacts the environment, with fossil fuels being the primary source of greenhouse gas emissions. With increasing global awareness of the need to transition to renewable energy sources, the importance of investing in clean energy stocks is also gaining momentum.
List of Best Energy Stocks in India
Energy stocks in India are likely to perform well in the medium to long term, particularly those focused on renewable energy and natural gas. Therefore, let’s look at some of the top energy stocks in India along with their market capitalization.
|Stock Name||Sub-Sector||Market Cap (in Cr)||Share Price|
|Reliance Industries Ltd||Oil & Gas - Refining & Marketing||₹18,55,806||₹2,420.35|
|NTPC Ltd||Power Generation||₹1,82,200||₹221.1|
|Adani Green Energy Ltd||Renewable Energy||₹1,50,015||₹974.5|
|Indian Oil Corporation Ltd||Oil & Gas - Refining & Marketing||₹1,35,846||₹91.9|
|Adani Total Gas Ltd||Gas Distribution||₹69,315||₹656.8|
The share price data in the energy sector stocks list is from 28th August 2023. However, for real-time updates on stock prices and market trends, visit the smallcase stocks collection today!
Why invest in Energy Stocks in India?
Investing in energy stocks in India can be a lucrative option if you have the financial capacity to handle their inherent volatility. While these stocks may exhibit price fluctuations, they have the potential to deliver substantial returns. This is primarily due to their sensitivity to changes in supply and demand dynamics, where increased demand or reduced supply can lead to rapid price appreciation, thus enhancing their investment appeal. If you seek higher returns and are comfortable with some degree of volatility, energy stocks in India might align with your investment objectives.
Top 3 Energy Stocks in India: An Overview
Let’s review the 3 top energy companies in India and why they are considered top energy stocks in India. These are the best energy stocks to buy in India.
Reliance Industries Ltd:
Dhirubhai Ambani founded Reliance Industries Ltd in 1966. The company operates in petrochemicals, refining, oil, gas exploration, retail, and telecommunications. It is one of the largest energy stocks in India, and it operates in more than 50 countries worldwide.
NTPC Ltd is India’s largest power utility company and was established in 1975. The company’s main products are electricity and power generation. They have operations in India and some neighboring countries. NTPC Ltd stocks are listed under energy stocks India.
Adani Green Energy Ltd:
Gautam Adani founded this renewable company in 2015 in India. The company produces renewable energy through wind and solar power plants. Adani Green Energy Ltd is a significant energy stock player in the renewable sector in India and operates in various states.
How to invest in Energy Stocks via smallcase?
We understand how scary it might sound to deal with challenges alone. Therefore, at smallcase, popular SEBI-licensed financial professionals from Windmill Capital have introduced an easy way to invest in the best energy stocks in India. Introducing Energy Tracker smallcase.
The Energy Tracker smallcase enables investors to track the performance of the energy sector stocks in India. An energy tracker is an exchange-traded fund (ETF) or index fund that invests in a basket of energy-related stocks or other securities.
This smallcase consists of the top energy stocks in India, including companies in Coal, power transmission & distribution, power trading, gas distribution, power generation and oil & gas.
However, if you’re confused about which stocks to pick, you can explore smallcases:
- smallcases are readymade portfolio of stocks/ETFs, that are based on a theme idea or strategy.
- They’re created and managed by SEBI-registered experts,
- smallcase.com offers over 200+ stock portfolios, created by 180+ managers.
- Some of the popular smallcases among new investors are as follows:
Disclosures for aforementioned smallcases
Disclosure for Green Energy smallcase
Factors Affecting Energy Sector Stocks in India
The growing demand for renewable energy has primarily influenced energy stocks in India. Therefore, before investing in an energy stock in India, let’s understand some of its factors.
Global Oil Prices:
Global oil prices have a significant impact on energy sector stocks. As energy companies are involved in oil exploration, production, and distribution, oil price fluctuations can directly impact their revenues and profits. Higher oil prices can lead to higher profits, while lower oil prices can lead to lower profits.
Government regulations also affect energy sector stocks. As most of India’s energy sector companies are regulated by the government, this affects stock performance a lot. Governments regulate the energy sector to ensure the environment and consumers’ safety. For example, if the government imposes stricter regulations on carbon emissions, energy companies may have to invest more in technology to comply, which can reduce their profitability.
The weather can also affect energy sector stocks, particularly in the renewable energy sector. For example, solar power generation can be impacted by the amount of sunlight received, while wind strength and consistency can impact wind power generation. Extreme weather events such as hurricanes and droughts can also affect the energy sector, particularly in terms of energy supply and infrastructure damage.
Political factors such as geopolitical tensions, trade policies, and taxation policies can also impact energy sector stocks. For example, instability in oil-producing countries can lead to higher oil prices, which can benefit energy companies. On the other hand, if there are trade restrictions imposed on energy imports or exports, it can limit the growth potential of energy companies.
Advantages of Investing in Energy Shares in India
The energy sector encompasses a wide range of industries, from traditional oil and gas companies to emerging renewable energy companies. Let’s explore some of the prime advantages that have been listed below:
- High Dividend Yield: Energy shares in India typically offer high dividend yields, making them attractive to investors looking for regular income. Many energy companies have stable earnings and cash flows, which allows them to pay consistent and growing dividends over time.
- Potential for High Returns: Energy stocks have the potential to deliver high returns, especially during periods of economic growth and rising demand for energy. As energy demand increases, companies may experience higher revenues and profits, leading to potential capital appreciation for investors.
- Diversification: Energy stocks can provide diversification benefits to an investor’s portfolio. Investing in a mix of energy companies across various sub-sectors, such as oil and gas exploration, refining, petrochemicals, and renewable energy, can reduce the overall risk of an investor’s portfolio by spreading investments across different sectors and geographies.
What is the Nifty Energy Index?
Pumped by the brand names, we all can add a list of the best energy stocks in India. However, that doesn’t mean these power stocks will offer returns according to our expectations. Therefore, we use the Energy Nifty Index, to evaluate the performance of every energy stock India.
The Nifty Energy Index is a stock market index that measures the performance of 10 companies operating in the energy sector in India. The National Stock Exchange of India (NSE) designed the energy sectoral index. The Index reflects the performance and it is one of the indices in the NSE.
The Nifty Energy Index formula:
|Nifty Energy Index = Summation of (Weight of Stock x Closing Price of Stock) for all stocks in the index.|
The Nifty Energy Index is helpful for investors as it provides them with a benchmark to measure India’s energy sector stocks performance. By tracking the index’s performance, investors can gain insight into the overall health of the energy sector stock in India and make informed investment decisions.
Additionally, the Nifty Energy Index enables you to invest in the energy sector stocks in India through exchange-traded funds (ETFs) and other investment vehicles. The index’s administrators rebalance it on a semi-annual basis, using January 31 and July 31 of each year as the cut-off dates.
Energy Sector Stocks in India-Synopsis
The energy sector stock in India has undergone significant changes over the last decade, with a shift towards renewable energy sources and an increased focus on energy efficiency.
At present, Coal is still the primary energy source, accounting for approximately 70% of India’s total electricity generation. On the other hand, renewable energy sources like wind, solar, and hydropower have significantly increased over 23% of India’s installed power capacity. Additionally, India is also investing in nuclear energy. Thus, with a plan to increase nuclear power capacity from 6.7 GW in 2021 to 22.5 GW by 2031.
The country aims at an ambitious target of achieving 450 GW of renewable energy capacity by 2030. This target includes 280 GW of solar, 140 GW of wind, 10 GW of bioenergy, and 5 GW of small hydro projects. Considering the dire need to produce greener energy, the government has also launched various initiatives to promote energy efficiencies, such as the Perform, Achieve, and Trade (PAT) scheme and the Ujala scheme.
By 2040, renewable energy is expected to account for more than half of India’s electricity generation. With a plan to reduce its dependence on imports, the government also focuses on developing electric mobility. It aims to achieve 30% electric vehicle penetration by 2030 to achieve Prime Minister’s net zero emission target by 2070.
Types of Energy Sector Stocks
The energy sector in India derives stocks in the form of four channels that have been listed below:
- Thermal: Since fossil fuels dominate the energy sector, the production of thermal energy has primarily contributed to the energy sector stocks in India. Thus, as of May 2022, India has a total Thermal installed capacity of 236.1 GW. However, the rest of the power is generated from coal largely and then from Diesel, Lignite, and Gas.
- Renewable Energy Stocks: Renewable energy refers to the energy obtained from natural resources. Such as sunlight, wind, rain, and geothermal heat. With a target of achieving 450 GW of renewable energy by 2030, the interest in renewable energy stocks in India is expected to dominate the market.
- Hydro: The water movement generates hydropower, also known as hydro energy, which is a renewable energy source. Hydro energy accounts for about 13% of the country’s total energy consumption in India, making it a popular investment opportunity for investors interested in energy stocks India.
- Nuclear: Considered as the smallest energy segment, Nuclear energy is a form of energy that is generated through nuclear reactions. Accounting with only 2.5% of the country’s energy generated from nuclear power plants. Therefore, consider investing in these energy stocks in India for portfolio diversification.
Are There Any Challenges?
Energy sector stocks can be a valuable addition to a well-diversified investment portfolio. However, it is critical to understand its challenges to be prepared to tackle them efficiently. Some of the primary challenges are:
- Volatility: Energy stocks in India can be highly volatile. Due to factors such as fluctuations in global oil prices, changes in government policies related to the energy sector, and geopolitical risks. Investors in energy stocks India should be prepared for stock price fluctuations and market conditions changes.
- Environmental Concerns: The energy sector significantly contributes to greenhouse gas emissions, and climate change. In response, energy companies are under increasing pressure to reduce their carbon footprint and invest in renewable energy due to environmental concerns. Failure to adapt to this changing landscape may result in reputational risks and regulatory challenges for energy companies.
- Geopolitical Risks: The energy sector in India is also subject to geopolitical risks, including tensions with neighbouring countries and supply chain disruptions. These risks can impact the operations of energy companies and lead to higher costs and lower profitability.
To Wrap It Up…
In conclusion, the Indian energy sector offers a variety of investment opportunities. Starting from traditional oil and gas companies to emerging green energy stocks.
Investing in green energy stocks promotes sustainable development. It offers the potential for high returns as the world moves towards a more sustainable future. India’s green energy stocks are set to experience growth in the upcoming years. This is because of the government support and increasing demand for renewable energy,
So, let’s do our bid to make India a net zero-emission country by 2070. How? You could start by investing in smallcase today!
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The 3 best Energy Stocks in India are:
1. Reliance Industries Ltd
2. NTPC Ltd
3. Adani Green Energy Ltd
You can invest in the Green Energy smallcase or any ETFs or mutual funds in that particular sector.
Energy stocks have great potential when it comes to periods of Economic growth. Recently energy stocks have the highest dividend yield of any stock market sector. Additionally, it is also the sector with the highest free-cash flow.
If you have the financial resources to support yourself, energy stocks can be a great investment. If you want a safe investment with high returns, then energy stocks are for you.
Yes. Energy Stocks typically have high returns.
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