A shortage of coal, the fuel used to generate about 70% of India’s electricity, is likely to have repercussions far and wide for the nation’s red-hot stock market, prompting traders to pick the winners and losers from the crunch.
Coinciding with the global spike in energy prices, India’s coal crisis is escalating when high crude oil prices are already threatening to stoke inflation in the energy-hungry nation. Power shortages are emerging just as demand looks set to surge amid a festival season starting later this month.
Here are some of the stocks and sectors to watch:
Coal India and Other Miners
As the power crunch starts to undermine India’s economic recovery, state-run Coal India Ltd. — the world’s top producer of the fuel — and a few other steel, aluminum and cement producers that have mines allotted for their own consumption, could emerge as winners.
The government on Tuesday allowed such captive miners of coal and lignite to sell 50% of their annual output, pushing more supplies in the market to ease shortages. Steel Authority of India Ltd., Hindalco Industries and Adani Power Ltd. are some of major captive miners.
State-run coal-fired power producers such as NTPC Ltd. may come under pressure amid the shortage if they are not allowed to hike prices, while private companies such as Tata Power Ltd. and Adani Power could emerge as relative winners.
“Tata Power’s near-term earnings prospects have materially brightened with the recent 30%+ rally in spot coal prices,” Lavina Quadros, an analyst at Jefferies India Pvt., wrote in a report on Tuesday.
More broadly, given the global energy crunch, producers of gas and oil also look set to continue benefiting as demand rises. A surge in natural gas prices could boost its explorers such as India’s biggest stock by market value Reliance Industries Ltd. and its state-run peer Oil and Natural Gas Corp.
On the other hand, city-gas distributors including Indraprastha Gas Ltd., Gujarat Gas Ltd. and Mahanagar Gas Ltd., and spot gas cargo importer Petronet LNG Ltd. may remain under pressure as input costs rise.
Makers of ceramic tiles and fertilizers, which are intensive consumers of gas, may also remain under pressure. Stocks to focus in those sectors include Kajaria Ceramics Ltd., Cera Sanitaryware Ltd., Chambal Fertilizers and Chemicals Ltd., Coromandel International Ltd. and Rallis India Ltd.
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