Energy Opportunities – The Theme For The Future

By Vikas Jethwani of Veez Capital

Vikas Jethwani of Veez Capital

As an investor, there is something that you consistently work towards and that is finding new investment opportunities which have the potential to transform your portfolio and prepare you for the future. If you have been looking for a futuristic theme which can provide you robust returns, then energy opportunities could be the right avenue. The theme is undeniably tied up with India’s ongoing growth story – as is evidenced by the following aspects.

Future-ready with energy opportunities

According to reports, India’s primary energy consumption has more than doubled in the last two decades and at present the country is the fourth largest energy consumer globally. Further, India’s per capita energy consumption currently stands at 1/3rd of the global average, indicating the enormous potential for growth in the years ahead. In fact, developed economies such as China and Korea indicate consumption at 4.4x and 9.5x of India, respectively, highlighting the quantum at which domestic energy consumption is poised to expand, as India strives to become a developed economy. Accordingly, the higher penetration of electricity coupled with the continuous growth in per capita income is expected to result in a higher demand for energy – making this an opportune time to capitalise on the upcoming possibilities in the energy opportunities theme.

Government backing at play

The Indian government has implemented significant reforms to bolster energy opportunities, aiming for a more stable and sustainable sector. Key reforms include improved remuneration for domestic oil and gas, alongside favourable exploration and production policies. Gas pricing reforms, based on the KP committee report, have linked gas realisation to crude prices, ensuring better returns even as the abolition of auto fuel subsidies and capping of upstream oil realisation during price spikes have contributed to policy stability. The government has also managed oil price fluctuations during crises effectively and introduced a unified tariff for a nationwide gas grid to boost consumption in remote areas. With a target to increase gas's share from 6.5% to 15% by 2030, sizable investments are now directed towards gas transmission lines, LNG terminals, and city gas distribution networks. The sale of stakes in public sector units (PSUs) has moderated, and receivables from DISCOMs have decreased due to new regulations and revamped schemes. The government is also focusing on domestic coal production, power transmission reforms, and DISCOM privatisation. India's goal of achieving net zero emissions by 2070 necessitates a massive push for renewables, opening opportunities for existing and new players in the energy value chain, while unlocking potent returns for investors.

The valuation game

There is another aspect which makes the energy opportunities theme an attractive one for future-ready investors and that is linked to the valuation angle. Despite the enormous potential for growth in the years ahead, energy theme’s market cap exposure is lower in the broader market indices, especially in comparison with their profit pool. According to research, even after the theme outperformed the broader market, valuation remained reasonable, with the Nifty Energy Index Trailing PE at 13.5x compared to Nifty 50 Index Trailing PE at 21.4x. This gap in energy opportunities indicates that the theme still has a long way to go, in terms of potential growth.

With strong potential for growth, governmental support and attractive valuations, energy opportunities are well positioned to become the theme of the future.