By Suryaprakash, Director,Gurutattva Wealth Pvt Ltd
Over the last few decades, the modern world's dependency on energy has skyrocketed. No economy can survive and grow if there is inadequate energy supply. In fact, a world without energy would be dark and quite unimaginable. Given the fast changing lifestyles amid rising necessity of modern-day equipment which are power hungry - be it your laptop, mobile phones, cars, air conditioners, kitchen appliances among other gadgets -- there is huge need for energy.
Interestingly, it is not only the households but factories, transport system, communication and you name it -- all are heavily dependent on continuous energy supply. An energy supply gap often impacts the entire modern ecosystem and can potentially derail an economy. Therefore, to ensure that energy supply remains uninterrupted, a whole lot of sectors - be it the Oil & Gas Sector, Power Sector, Renewables - Solar & Wind - involving many companies and component makers are at incessant work to address the rising energy needs. This is a clear indication that Energy is a big buzzword going forward and India - the fastest growing and soon becoming world's 3rd largest - will not be an exception.
India - Set To See A Paradigm Shift In Energy Sector
India, a country of 1.4 billion with high aspirations to grow, can't reach new economic highs unless it is energy secured. Over the last two decades, India's primary energy consumption has more than doubled. In fact, the country is currently the fourth largest energy consumer globally after the US, China and the European Union. However, when it comes to per capita power consumption, India drastically falls as it is only a third of the world's average. With India expected to be the 3rd largest economy in the world, its per capita energy consumption could also witness a significant rise in the upcoming years. This puts India in a sweet spot when it comes to investment opportunities in the energy sector.
Factors To Push Up Energy Consumption In India
a) Focus on Manufacturing : India has over the years graduated from agriculture to services as one of the dominant sectors contributing to economic growth. Now with the government's focus on making India as a global manufacturing hub, it is likely to create a massive demand for power and open up tremendous growth opportunities in the energy sector.
b) Premiumization : Higher penetration of electricity coupled with growth in per capita income would result in higher demand for energy. It needs to be highlighted that recently India reached close to 100% mark in terms of population having access to electricity. As the necessity of these households rises, so will be the energy consumption.
c) Climate Change : For a hot tropical country like India, the power demand is strongly correlated with the weather conditions. The heat wave conditions witnessed in recent years has significantly increased the power requirement in India across the cities.
d) Government Reforms : Continuous reforms by the state in the energy sector, especially Oil & Gas, Power and Renewables are likely to propel the energy sector much farther.
e) Aim to be 'Net Zero' by 2070 : India is targeting to be Net Zero in carbon emissions over the next few decades. This would require massive push for renewables which is likely to open up opportunities for existing and new players in the energy value chain.
The Beneficiaries
Sectors which look promising include Refineries, Power Generation, Power Transmission & Distribution, Oil Exploration & Production and Integrated Power Utilities among others are direct beneficiaries of the energy reforms. On top of it, there are various allied sectors like Original Equipment Manufacturers (OEMs), Capital Goods companies, Engineering, Production and Construction (EPC) Service Providers and Battery makers among others which stand a good growth potential.
How Should Investors Ride The Energy Opportunity Wave?
The energy sector transformation is a long-term and growth-oriented story which is very promising. As India's structural story remains strong and expected to grow at a robust pace, energy remains a major catalyst for India to realize its growth target.
For those interested in the energy investment theme, the mutual fund route is a viable option. ICICI Prudential Mutual Fund currently has a New Fund Offer (NFO) focused on the energy sector, which closes on July 16, 2024.
