India is one of the fastest growing economies in the world, with a population of over 1.4 billion people and a huge demand for energy. Under the Atmanirbhar vision, India's energy sector is undergoing a major transformation, as it seeks to provide dependable, affordable, and sustainable energy to its citizens, while also reducing its carbon footprint and improving its air quality. By announcing incentives for the green energy segment, the interim budget for 2023-24 also touched upon this vision.
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Potential For Growth
Sample this. India’s per capita energy consumption is one-third of the global average. On the contrary, China's consumption is 4.4 times of India. Even peers like Thailand, Indonesia and Vietnam are also at 2.75x, 1.4x and 1.8x of India. Energy consumption in an economy is directly linked to economic growth. With India expected to be the third largest economy in the world, its per capita energy consumption could also witness rise in line with economic growth.
This presents an interesting proposition for anyone who is optimistic on the Indian economy’s potential in the medium to long-term. The Indian economy is already growing at a rate higher than vastly anticipated. Just a few months ago, the consensus on India’s economic growth for the July-September 2023 quarter was in the 6.5% range, but the actual performance came in at 7.6%.
For those looking to benefit from India’s economic growth, the energy sector provides a significant opportunity in the coming years and decades.
Traditional and Renewable Energy – Growth on both fronts
The lower per-capita penetration of passenger vehicles means traditional energy sources like crude oil will continue to rise in consumption in India in the coming years. Then there is the use of natural and petroleum gas used at various levels, ranging from industrial use to its use as a primary fuel in kitchens across the country. To be self-reliant in power production, there is also an impetus on coal production. All this is just one part of the equation.
Then comes in the entire green-energy sector, which is witnessing a rapid growth for itself. Electric cars and solar panels and wind power generation are growing rapidly with incentives from the Central as well as State Governments. With multiple measures being taken on the green energy front, India aims to have 50% of energy requirements fulfilled from renewable sources by 2030, and aims to achieve the target of ‘net-zero’ by 2070.
So, with the Energy theme in India set to grow both comprehensively and consistently in the future, how can we as investors participate in it?
Invest in Energy Theme Through Mutual Funds
The simple answer is by being invested in the already large, yet rapidly growing energy segment in the country through thematic offerings from mutual funds.
At present, the energy segment is under-represented in the broader market index in India. Weight of the energy sector in the S&P BSE 200 Index, including oil and gas and utilities companies, excluding Reliance Industries Ltd, fell from almost 25% in December 2004 to 6.75% in December 2023. The other startling fact is that the entire Indian energy sector represented by the Nifty Energy Index is much smaller than one global energy giant — Saudi Aramco.
Simply put, this means there is likely to be a huge upside potential in this space in the coming time. Government policy initiatives for the traditional energy space along with an impetus to new energy is expected to enhance value for the companies within the energy theme which aim to power energy demand of the country in the coming decades.
— The author, D P Singh, is DMD & Joint CEO, SBI Mutual Fund. The views expressed are personal.
(Edited by : C H Unnikrishnan)
First Published: Feb 27, 2024 10:21 AM IST
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