Power stocks jump on hopes of stable government, rupee stability

The Nifty and Sensex touched record high on Monday on broad based buying in all sectors. The Nifty touched an all-time high of 6,580.90 and Sensex hit a life-time high of 22046.58 today. Both the indices traded with a gain of more than 1 per cent as of 12.30 p.m.

Banking stocks led the rally, but power stocks also strong buying interst today. The index of power stocks on the BSE traded 0.8 per cent higher as compared to a 1.1 per cent gain in the broader markets. ABB, JSW Energy, Adani Power and Reliance Power were among the major gainers in the power sector today. ABB, up 2 per cent, was the top gainer in the power index.

Harshvardhan Dole of domestic brokerage IIFL told NDTV that power stocks, whose valuations have come down drastically, can see a re-rating if a strong government comes to power at the centre post elections due by May.

The recent appreciation in the rupee, from the lows of 68.85 per dollar in August to under 61 per dollar last week, has also helped power companies, which depend on imports for raw materials, he added. Rupee stability will lead to re-rating of power companies, Mr Dole added.

On a weekly basis JSW Energy has appreciated 7.16 per cent, Adani power has jumped 4.33 per cent and GVK Power has gained 4.6 per cent.

IIFL has a buy call on the following power stocks.

1. Tata Power with a target of Rs.95                       
2. Power Grid with a target Rs.120
3. NTPC with a target Rs.135
4. JSW Energy with a target Rs.65

Motilal Oswal view on ABB:

ABB's global management told Motilal Oswal that cost rationalization and services portfolio are key areas for its India unit. ABB India will target Rs 1,500 crore in exports from India by 2015, the management said. Exports from India were at Rs 900 crore in 2012 and Rs 500 crore in 2010. ABB sees India Services business to grow at 18 per cent in 2015 versus 12 per cent in 2012, the management added.

The brokerage says services and exports are high margin businesses for ABB India. Raw material costs, as percentage of sales, are down 500 basis points in three years. Expect over 50 per cent earnings per share CAGR in 2 years, it added.

Motilal Oswal says ABB India is still expensive as it is trading at 38 times its calendar year 2015 expected earnings per share.