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Top 3 Energy Stocks For Long-Term Investment In India 2022
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Energy is the base of any economy. The energy sector is continuously growing. Energy is emerging as the biggest need of humans. The last few years have seen an astonishing increase in the production and consumption of energy. Coal, oil, and natural gas have fueled tremendous economic growth. Renewable energy is also witnessing the change, but the dependence on fossil fuels is yet to end. In today's world, the energy sector has a vital contribution to the development of almost all economies, whether developing, developed, or advanced. The coal mining, oil and gas, power generation, and power distribution sectors are a significant part of the energy industry.
India has a lot of energy-related potential. India is moving ahead in the energy sector, and focusing on renewable energy has increased the importance of energy stocks. If you talk to the good and experienced players of the stock market, you will find that energy stocks give much higher returns than other stocks, but you can get good returns only if you invest in the energy sector for the long term. A good investor understands the market properly. Whenever we talk about energy stocks in India, we cover the crude oil sector and related products, which help in their extraction, derivative, processing, and distribution.
Oil drilling facilities and plants in India constitute the energy reserves. In addition, crude oil-fired industries that generate electricity or manufacture plastics, asphalt, lubricants, paints, and fuel cars are all included in India's energy company's stock.
Investing in the energy sector can benefit aspiring investors who want to play the long game in the market and double their profits. Today, through this blog, you will learn about the most suitable Top 3 energy stocks in India; investing in them gives you decent returns. The company's stocks that meet India's crude oil and energy requirements include Petrol, Diesel, LPG, Kerosene, CNG, Heating Oil, ATF (Aviation Turbine Fuel), etc.
Do you know that India is one of the largest producers of energy and electricity globally? Along with this, India is also the second largest consumer of energy and oil. The installed power capacity in India is 388.13 GW (Gigawatts). India has also made tremendous progress in the field of renewable energy. India ranks fifth in terms of solar power capacity and fourth in terms of wind power capacity.
The Government of India estimates that the renewable energy sector will add 227GW by the end of 2022. So if we talk about the figures, India's total installed renewable energy is 100.68 GW. While nuclear power is 6.78 GW and hydroelectric power is 46.41 GW.
The entire energy sector of India receives energy through the four channels given below:
Thermal
Do you know that about 60.36 percent of India's power capacity comes from the thermal segment? The energy generated through the thermal segment comes from coal, lignite, gas, and diesel-based power plants. By 2021, the total installed capacity of coal in India will have reached 202.20 GW, and the total installed capacity of diesel will be only 0.51 GW. Stocks of Adani Power and Tata Power are among the top stocks in the thermal energy sector.
Renewable Energy
Renewable energy mainly includes wind and solar energy. Renewable energy plays an important role in meeting the potential of India's electricity demand. A weighted average of 24.5% of the total power-producing capacity belongs to the renewable segment. Wind power contributes more, with 37.75 GW, while solar power generates about 34.91 GW. Suzlon Energy, Adani Group, and Tata Power Solar are some of the major stocks in the renewable energy space.
Hydro Power
The contribution of hydropower in meeting the energy demand of India is no less. Hydropower contributes 12.2% to some of India's electricity generation capacity, and today the total installed capacity of hydroelectric power in India is 46.51GW. Tata Power shares and NHPC are among the best stocks in the hydropower sector.
Nuclear Energy
Although nuclear energy contributes very little to the country's total electricity generation capacity, the role of nuclear energy is gradually increasing. It contributes 1.8% to the total production capacity of the country. Nuclear power has an installed capacity of 6.78 GW. Talking about the stocks, NTPC and HCC are the major stocks in the nuclear energy sector.
Some Important Considerations Before Buying Energy Stocks
Price Volatility
Oil prices in the global market constantly fluctuate, mainly due to geopolitical conflicts, foreign policy, resource availability, etc.
As an investor, before buying energy stocks in India, you should look at WTI and Brent crude, the two primary crude oil prices worldwide. The energy sector is never going to be easy for an investor. However, since the chances of higher returns are higher, so are the higher risks. India's oil and gas energy sector pricing is based on Brent crude prices, so you should give it more priority while buying stocks.
Segment Identification
Before investing in the energy sector and oil company stocks in India, identify the segment you want to invest in. Be it upstream, midstream, or downstream segment. The upstream segment derives its advantage from higher Brent prices. The other two segments profit from the huge difference in prices of products like diesel and crude oil, petrol, and ATF.
Downstream companies are generally less volatile in terms of costs and revenues. Whereas changes heavily influence upstream and midstream energy companies in global oil prices.
Company Reserve
Energy sector stocks are never stable. Therefore an investor should actively assess the reserves of the company before investing in the company's stock. They will find it simpler to comprehend the company's oil drilling facilities, oil processing capabilities, and capital expenditures.
Only by estimating the refining volume of the company and the reserves already available can you choose the right one from the stocks of various companies.
Company Finance
You should go for investment only based on the company's finances. Due to the high risk in the energy sector, investors should evaluate the financial front of those energy companies before committing. By doing this, you can understand those companies' market value, the company's debt amount, the debt/equity ratio, the annual income of the company, and interest coverage. You will find it simpler to make investment decisions as a result.
1. Reliance Industries
Reliance Group is the largest company in India, which has forayed into different sectors. It is also one of India's largest companies in the energy and oil field. Reliance Industries Limited was established in 1973.
Currently, its stock price is 2129.2 (Change is possible). Also, its market capitalization is around Rs 1439779.95 crore. The company recently reported that its gross sales in the last quarter were Rs 2789400 crore and a total income of Rs 2611790 crore. Due to the PE ratio of Reliance Industries being 45.07, its stock is quite expensive. However, the returns on this can be quite high, provided you invest in energy for a long time. Its EPS is 47.24, which is very good. This year's dividend of Reliance Industries is around 0.33 percent.
By 2035, the corporation wants to be carbon neutral. There are also many green energy projects in the pipeline, indicating a positive future outlook for the company.
2. Adani Enterprises
Adani Enterprises has been paying more attention to the energy and oil sector over the past few years as they understand the future of energy. As a result, the energy stocks of Adani gave a return of 1253.69 percent for the last three years compared to 45.73 percent for the Nifty 100. Adani Enterprises has a good CFO/PAT ratio of 2.48, while its cash flow is good.
The PE ratio is 424.06. Due to this, the stock of Adani Enterprises is quite expensive, but it has performed very well in the last few years. The Inventory Turnover Ratio of Adani Group is 10.17. Adani Enterprises aims to invest more than $70 billion in energy projects in the coming years.
3. Bharat Petroleum Corporation Limited (BPCL)
Bharat Petroleum Corporation Limited is one of India's oldest energy sector companies. It was established in 1952. At present, the price of one share of BPCL is Rs 462.65. This firm has a high level of operating leverage. The company's cash flow is well managed, and its CFO/PAT ratio is 1.25. Talking about the overall market capitalization of BPCL is around Rs 100360.48 crore. In the last three years, the stocks of BPCL have earned 25.34 percent profit and returned 49.85 percent of the profit to its investors.
Its PE ratio is 5.27, which is slightly lower. Bharat Petroleum Corporation Limited (BPCL) has a D/E Ratio of 1.44, reflecting the company's low debt. The dividend of BPCL in this current year is approximately Rs.17.20.
The importance of the energy industry is increasing all over the world. The future of energy sector stocks in India is also visible. The demand for energy in domestic and foreign countries is increasing, which has opened up immense possibilities for investors in this energy sector.
Additionally, it has been crucial to the development of the Indian economy. This is bound to increase the demand for energy and electricity. The government has estimated that solar power will contribute about 116 GW to India's electricity generation by 2023, while wind power will account for about 69 GW. Hydropower (15GW) and biogas will also significantly contribute to this.
Renewable energy is also developing very fast in India. Therefore, the target of renewable energy has been increased to 230GW. With this decision, Adani Power, Tata Power, and other similar energy stocks are seeing huge gains in the stock market.
The way investments are increasing in the energy or power sector has opened many options for the people in this sector.
The energy sector offers vast investment opportunities. By evaluating all the energy sector companies, you can invest in the best companies, and they can give you the best dividend.
In India, there will be no decrease in the demand for energy due to the country's expanding population and rising living level. Thus, if you are looking to make long-term profits, investing in energy stocks can be quite beneficial for you. However, remember that while it has high returns, the risk is also very high. So do not blindly follow hot tips. Always go ahead with that investment after evaluating your risk appetite and company.
Frequently Asked Questions
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Of course, the future belongs to the energy sector. When the price of energy or oil in the international market rises, energy and oil companies make enormous profits for each barrel of oil. So the dividends for investors in energy stocks are also relatively high.
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Renewable energy plays a vital role in meeting the potential of India's electricity demand. A weighted average of 24.5% of the total power-producing capacity belongs to the renewable segment.
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- Tata Power
- JSW Energy
- Adani Power
- PTC India
- NHPC Limited
- Orient Green Power
- GAIL
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