Stories
JPMorgan Favors Largecap Power Utilities Over Pricey Equipment Suppliers Amid Surging Demand
- •JPMorgan prefers largecap power generation utilities due to comfortable valuations and defensive business models, despite rising electricity demand creating opportunities across India's power sector.
- •Atul Tiwari, Head of India Industrials, Electric Utilities and Infrastructure Research at JPMorgan, notes that equipment supplier stocks are currently expensive, with the market already factoring in growth opportunities.
- •India's power demand has grown 10-12% since March, exceeding the historical average of 5%, driven by seasonal factors and long-term trends.
- •While large utilities have limited exposure to merchant market opportunities due to long-term PPAs, select smaller generators can benefit from higher merchant power prices during non-solar hours and the expanding data center market.
- •Private corporate capex is growing, with strong pipelines in thermal power, renewable transmission, and semiconductors, while public infrastructure spending also sees significant growth, particularly driven by data center expansion.
Key Questions Answered
JPMorgan favors largecap electricity generation utilities because their valuations are comfortable and offer a defensive business model, whereas power equipment stock valuations are considered too expensive and already factor in the market opportunity.
Smaller power generators can supply reliable electricity directly to commercial and industrial customers like expanding data centers. Additionally, companies with battery storage can take advantage of higher merchant power prices during non-solar evening hours due to greater flexibility.
Central government capital expenditure grew 25% to 30% year-on-year in the first four to five months of the financial year, expected to normalize to 10% to 12% for the full year. Furthermore, operational data center capacity is projected to surge from 1.5 gigawatts to between 8 and 9 gigawatts over four to five years.
