AI Powerplay! Proxy power stocks give up to 100% returns in India's hottest trade this year

India's power and electrical equipment stocks have become one of the strongest proxy trades for the artificial intelligence boom this year, as investors look beyond software and chips to companies that can benefit from rising electricity demand.

The gains have been sharp. Hitachi Energy India has doubled investor money so far this year. Kirloskar Oil Engines is up 76%. GE Vernova T&D India has gained 40%, Voltamp Transformers has risen 38%, Siemens Energy India is up 28% and Cummins India has advanced 26%.

The rally shows how quickly the AI theme has moved into the power ecosystem. Data centres need reliable, round-the-clock electricity. They also need transformers, cables, switchgear, grid connections, backup power and transmission infrastructure. That has put companies across the power value chain on investor watchlists.


Paresh Bhagat, Chairman of Mangal Keshav Financial, said the AI boom has made the long-term case for India’s power ecosystem stronger. "AI data centres consume far more electricity than traditional data centres, creating a massive need for reliable power," Bhagat said.

He said that as a broad estimate, 1 GW of data-centre capacity could require nearly 1.5 GW of 24x7 power and close to 6 GW of renewable capacity after factoring in intermittency and storage. That can create a multi-year opportunity across generation, transmission, transformers, cables, switchgear and grid modernisation.

Power stocks become AI proxy trade

The market is treating some power and electrical-equipment companies as indirect AI plays. Puneet Singhania, Whole-time Director at Master Capital Services, said the AI boom has strengthened the long-term investment case for power stocks because artificial intelligence, hyperscale data centres, cloud computing and digital infrastructure need a large and reliable electricity supply.

"That has increased the interest of investors in companies that are part of the power value chain including generation, transmission, distribution, equipment manufacturing and grid infrastructure," Singhania said.

He said stocks with direct exposure to power generation, transmission networks, transformers, cables, switchgear and EPC execution have generally done better because investors expect them to benefit from the upcoming capital expenditure cycle.

The returns also show that the rally has not been uniform. Equipment makers have attracted stronger interest because order inflows from data centres, transmission expansion and renewables can show up more directly in earnings. Regulated utilities have been more subdued because their returns are often capped under regulatory frameworks.

Balaji Rao Mudili, Research Analyst at Bonanza, said India is not yet building AI data centres at the same scale as the US, but the country is moving in that direction. "Large companies like Reliance, Adani, Tata and global cloud providers are investing in data centres, which will need a reliable supply of electricity," Mudili said.

He said Hitachi Energy India and GE Vernova T&D India are already pricing in the theme on expectations of strong order-book growth. PSU players such as NTPC and Power Grid have underperformed because their return on equity is largely fixed under a regulated framework, making them more stable dividend plays than high-growth AI plays.

What investors should track

Analysts said the AI-power theme can last for years, but stock selection will matter. A company merely belonging to the power sector may not automatically benefit from data-centre demand. Bhagat said investors should avoid chasing the theme out of fear of missing out, as many power and electrical-equipment stocks have already seen a sharp run-up.

"A strong industry tailwind doesn’t automatically make every stock a good buy at any price,” he said.

He said investors should separate companies genuinely benefiting from data-centre and grid-related capex from those only riding the AI narrative. Order-book quality, execution capability, capacity utilisation, margin sustainability, balance-sheet strength and cash-flow conversion should be watched closely.

Singhania said investors should study order-book growth, execution ability, expansion plans and balance-sheet strength before buying into the theme. He said some stocks have already priced in optimistic growth expectations.

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He said investors can track companies across different parts of the electricity value chain, including Adani Power, NTPC, Tata Power and Power Grid Corporation of India.

Mudili said investors should track the pace of data-centre buildout, order inflows for companies linked to data-centre power infrastructure, project execution and government spending.

He said Hitachi Energy and Siemens Energy India are names to watch in data-centre power and HVDC, while Kirloskar Oil Engines and Cummins India are linked to gensets. Polycab and KEI Industries are cable plays, Voltamp Transformers is linked to transformer demand, and Apar Industries has exposure to conductors and transformer oils.

Valuation risk remains

The AI-power trade has already rewarded early investors. But analysts said returns from here will depend on earnings delivery, not just the strength of the theme. Companies will need to convert demand into orders, orders into revenue and revenue into cash flow. That will be the test for stocks that have already rallied sharply.

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The power sector may remain one of the clearest AI proxy plays in India. But after the strong run in names such as Hitachi Energy, Kirloskar Oil Engines, GE Vernova T&D India and Voltamp Transformers, analysts say investors need to be more selective. The theme may be long term, but entry price will decide whether it becomes a good investment.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)