Due to urbanization, the demand for energy is continuously increasing. Investments worth Rs 2 lakh crore were made in the energy sector in the last one year. The energy sector is expected to grow rapidly for the next decade.
New Delhi. Due to rapid urbanization, industrialization and government measures, equity mutual funds have invested more than Rs 4 lakh crore in energy-themed opportunities in India. Recognizing energy as a multi-decadal theme, fund houses are now launching new offerings to meet the growing appetite of investors willing to take risks in energy exposure. Given the increasing consumption of energy, not only small investors are tempted to invest in this sector, but investors from all over the world are investing heavily in this sector.
Allocations to the energy theme reached Rs 4.07 lakh crore as of June 30, 2024, more than double the value in June 2023 and nearly four times since June 2019. Along with diversified equity funds, energy-themed funds such as the recently launched ICICI Prudential Energy Opportunities Fund offer dedicated exposure to the energy theme. Experts point to significant investment opportunities in energy stocks, which are currently trading at attractive valuations. India’s energy demand, already the fourth largest in the world, is set to grow further. It is estimated to grow at an annual rate of 4% to 5% in the coming years.
Estimated to grow for 10 years
Fund managers expect substantial growth in demand over the next decade. As incomes rise and lifestyles change, the demand for energy-intensive appliances, vehicles and modern amenities is also increasing. This growth is further fuelled by government measures such as the Production Linked Incentive (PLI) scheme for renewable energy and incentives for electric vehicles.
Price to earnings discount 38%
Nitya Mishra, fund manager at ICICI Prudential AMC, said, “We believe current valuations in the energy sector are reasonable. For instance, the Nifty energy index is currently trading at a price-to-earnings (P/E) discount of 38 per cent compared to the broader Nifty 50 index. This is when the energy sector has outperformed the broader market recently. The price-to-book (P/B) discount is even more significant.”
3 strategies will give you speed
Nitya Mishra said that the growth momentum for energy-related investments in India is undoubtedly strong. 3 key strategies including strong energy demand, supportive government policies and rapid technological advancement are expected to drive substantial returns in the sector over the next decade. The fund house plans to adopt a diversified approach, allocating investments strategically across the entire energy value chain. The portfolio will aim to avoid being overly dependent on any one company or sub-sector.
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FIRST PUBLISHED : July 29, 2024, 17:18 IST