To see the task new Indian Prime Minister Narendra Modi faces to fix the country’s electricity blackouts, look no further than the soaring share prices of companies that make back-up power generators.
Kirloskar Oil Engines Ltd. (KOEL) is up 53 percent this year, Greaves Cotton Ltd. (GRV) 45 percent and Cummins India Ltd. (KKC) 35 percent, more than the benchmark S&P BSE Sensex’s (SENSEX) 19 percent increase. Investors are betting Modi’s push to revive economic growth from close to a decade low will stoke power shortages, spurring demand for generators even as he vows reliable electricity supplies by 2022.
“Modi’s promise of round-the-clock electricity supply is doable, but is extremely difficult,” said D.K. Aggarwal, New Delhi-based chairman of SMC Investments & Advisors Ltd., which manages more than $100 million of Indian shares. “Demand for back-up power will remain in the foreseeable future.”
Modi’s agenda includes speeding up about $255 billion of stalled investments after his Bharatiya Janata Party swept to India’s first single-party majority since 1984. A pledge to spur power output may be harder to implement as regulators force electricity retailers to sell below cost to ensure affordability, limiting their capacity to pay for more supplies.
India’s market for inverters and diesel-fired generators will grow almost 20 percent to $2 billion by 2017, according to Amol Kotwal, director for the energy and power systems practice at consultancy Frost & Sullivan in Bangalore. The current size of $1.7 billion compares with China’s $4.5 billion, $1.2 billion in Brazil and Indonesia’s $900 million, Kotwal estimates.