Power sector stocks regain momentum on rising electricity demand and strong investment cycle

After a muted financial year (FY) 2025-26, weighed down by a prolonged monsoon and a high base, the power sector is regaining momentum. The improving sentiment is driven by a revival in electricity demand and increasing confidence in a multi-year investment cycle. This optimism is reflected in market performance, with the BSE Power Index emerging as the best-performing sectoral index in 2026 so far, gaining 20.5%. Comparatively, the BSE Sensex declined 10.5%. The analysis is based on 15 June 2026 closing values.

Electricity demand is expected to rebound in the current financial year, supported by an early summer heatwave, rising cooling needs, a favourable base effect, and continued growth in industrial and commercial activity. Structural drivers such as the expansion of data centres and EV (electric vehicles) charging infrastructure further strengthen the outlook. ICRA, in its May 2026 note, projects power demand to grow by 5-5.5% in 2026-27, compared with a modest 1% growth in 2025-26. A Citi report also sees demand growing at 5-6% in the medium term. It sees El Nino linked tailwinds (boosting agri-pump and cooling demand) as the key drivers for demand in 2026.

Analysts say India’s power sector is well placed, backed by strong capacity additions, rising electrification, and growth in renewables. Segment-wise, most experts favour transmission and distribution space as it offers a multidecade investment opportunity. The Central Electricity Authority (CEA) has identified `7.9 trillion of transmission investments through 2035-36.


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Aditya Welekar, Senior Research Analyst at Axis Direct, says there is a significant gap between the current transmission capacity and the 2026- 27 target, and bridging this shortfall presents a key growth opportunity. Analysts also see strong opportunities for transmission developers in the long run supported by renewable integration, new hydro projects, and international HVDC (High Voltage Direct Current) interconnections. Vishal Periwal, Research Analyst, PL Capital, believes that renewables remain the volume engine with India targeting 500 GW of non-fossil capacity by 2030. In addition, storage (pumped hydro and batteries) is emerging as the compelling opportunity.

A brief lull
Electricity demand was lower in 2025-26 due to weather related disruptions. The demand is expected to improve.

Strong currents

March 2026 quarter

The sector delivered a mixed performance, with higher depreciation and finance costs weighing on profitability. Arun Kailasan, Research Analyst at Geojit Investments, who analysed 10 listed power companies, noted that adjusted earnings— after factoring in regulatory deferral account movements and tax impacts—were under greater pressure. He says that a larger number of companies reported declines in EBITDA (earnings before interest, taxes, depreciation and amortization) and net profit, signalling weaker underlying profitability. He also highlighted that more companies missed margin estimates than revenue expectations, pointing to uneven execution across the sector.

Going forward, sector revenues are expected to be supported by capacity additions, improving utilisation levels, and continued renewable energy scale-up. While margins may see some improvement, elevated capex and the resulting rise in depreciation and interest costs could weigh on profitability and limit improvement in return ratios.

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Investor approach

After the sharp re-rating seen between 2022 and 2024, valuations across the sector have largely normalised. As Kailasan notes, incremental returns from here are expected to be driven more by earnings growth rather than further multiple expansion. Given the sector’s structural, multi-year growth cycle, any market corrections are better viewed as opportunities to gradually accumulate quality stocks. Valuations, however, differ across segments. Parts of the renewable space remain richly valued, while regulated utilities appear more reasonably priced. Periwal highlights that regulated, dividendyielding businesses—such as transmission companies and large public sector undertaking (PSU) generators—offer stable and predictable returns. In contrast, pure-play renewable companies provide higher upside potential but come with premium valuations and execution risks.

For retail investors, a staggered approach to investing is advisable rather than chasing momentum, with a clear focus on businesses that offer strong earnings visibility.

Risks

Despite its long-term growth potential, the sector is not without risks. Analysts highlight key concerns such as the elevated debt burden of around Rs.7.3 trillion in distribution companies, execution challenges in renewable and transmission projects—including delays in land acquisition and grid connectivity—and the softening of power tariffs. These factors remain important monitorables for investors. Here are three stocks from the BSE Power Index with a substantial number of buy ratings on Bloomberg.

NTPC

• Reported a 34% year-on-year rise in reported net profit in the March 2026 quarter, primarily supported by higher deferred tax gains and increased income from associates.
• Strong thermal portfolio and a sizeable renewable pipeline under construction offer multi-year earnings visibility.
• Ongoing investments in nuclear, pumped storage, and battery storage are expected to drive long-term growth, with planned capex of Rs.6.2 trillion through 2031-32.
• Captive coal mining initiatives should enhance fuel security and reduce underrecovery risks.
• Citi report highlights stable regulated returns, a robust project pipeline, and moderating terminal risks could support a gradual valuation re-rating.

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Power Grid Corporation of India

• Reported a subdued March 2026 quarter, with revenue and adjusted net profit declining 5% and 24% year-on-year, respectively.
• Maintained strong execution momentum in 2025-26, surpassing its capex guidance.
• Order book remains healthy at Rs.1.7 trillion across tariff-based competitive bidding, regulated, and other projects.
• Opportunities in hydro and international HVDC interconnections, estimated at Rs.15 trillion over the next decade, provide longterm visibility.
• Analysts remain constructive, citing its strong execution track record, robust capex pipeline, and growth potential in adjacent segments such as battery storage, smart metering, and data centres.

JSW Energy

• Delivered strong revenue growth of 41% year-on-year in the March 2026 quarter, driven by capacity additions and higher power sales volumes, though profitability was weighed down by higher depreciation and finance costs.
• Strategic focus on new energy solutions— FDR (Firm and Dispatchable Renewable Energy), hybrid projects, energy storage, and green hydrogen—supports long-term expansion.
• KSK Mahanadi offers low-cost brownfield expansion optionality.
• Analysts point to strong operational efficiency, a healthy balance sheet, robust cash flows, and an aggressive expansion strategy as key positives.