Energy and Resources Sector Poised for Long-Term Growth: Tata Asset Management
Bengaluru, 19th -10- 2024: The energy and resources sector is undergoing a transformative phase. The performance of the energy sector is significantly influenced by the government’s increased budget allocations towards infrastructure, particularly in power distribution and renewable energy projects. Public-private partnerships (PPPs) have accelerated the execution of large-scale initiatives. Schemes like the Pradhan Mantri Suryodaya Yojana and incentives for renewable energy projects continue to drive significant investments. Moreover, the government’s push towards domestic manufacturing through the Production-Linked Incentive (PLI) scheme and the shift toward de-risking supply chains away from China are boosting the demand for energy.
In addition to these policy measures, the sector is also benefiting from rising energy demand, driven by a growing population, rapid urbanization, and industrial recovery. The installed renewable power generation capacity has increased at a fast pace over the past few years, posting a CAGR of 15.4% between FY16 and FY23. (Source: Ministry of New and Renewable Energy, Central Electricity Authority (CEA), IBEF, Greenpeace India)
India ranks 4th globally in installed renewable energy capacity, with solar and wind energy contributing more than 50% of India’s total renewable capacity. The share of renewable energy in the total generation mix is expected to rise from 18% to 44% by 2030, while the share of thermal energy would reduce from 78% to 52%. (Source: Invest India, BP Statistical Review World Energy 2020, CEA, News Articles, Ministry of Power, IHA, IBEF)
Satish Mishra, Fund Manager, Tata Asset Management said: “The energy sector is set for long-term expansion, fuelled by robust domestic demand, proactive government initiatives, and the global transition towards renewable energy. With renewable capacity, particularly in solar and wind, set to rise significantly, alongside stable demand for traditional energy sources like petroleum and natural gas, the sector is poised for a balanced expansion. This growth is driven by increased industrial and residential consumption, positioning the energy sector as a key driver of India’s future economy.”
The Tata Resources & Energy Fund has added a cyclical bet to other sectors – like chemicals and metals & mining – as a value addition to the energy theme.
As the 6th largest chemical producer globally and 3rd in Asia, the chemical sector contributes 7% to India’s GDP and 12% to its total exports, with 100% FDI allowed under the automatic route. (Source: IBEF, Invest India) Within this, speciality chemicals are expected to grow at a CAGR of 11.5% by 2027, while agro-chemicals and petrochemicals are projected to grow at 8.3% and 11%, respectively, during the same period. On the metals front, India’s steel production could surge to 500 million tonnes by 2050—nearly four times the current output. Meanwhile, aluminium demand is expected to double to 9 million metric tons by 2033, driven by urbanization and rising needs in infrastructure, automotive, aviation, defence, and power sectors. (Source: Aluminium Association of India, EIU, ICRA, Ministry of Mines, Care Ratings, Indian Bureau of Mines) The shift towards electric vehicles (EVs) will further boost demand for aluminium, benefiting producers as EVs become a cornerstone of India’s industrial and transportation future.
“Given the sector’s strong performance, a thoughtful portfolio allocation becomes crucial. A balanced exposure of 15-20% to the energy sector allows investors to benefit from both the ongoing growth in traditional energy sources and the rapid expansion in renewables, while also capturing the upside from government-led infrastructure initiatives,” added Mr Mishra.
Over the last 5-year period, Tata Resources & Energy Fund has delivered a return of 28.25% vis-à-vis the respective benchmarks of Nifty Commodities TRI-26.91% and Nifty 50 TRI-19.37%, and it has achieved a 44.39% return in the last one-year period, as of Aug 31, 2024, vis-à-vis the respective benchmarks of Nifty Commodities TRI-53.46% and Nifty 50 TRI-32.64%. This fund offers comprehensive exposure to the entire energy spectrum, positioning it well to capitalize on the rising demand for electricity in India. The portfolio includes companies involved in coal production, oil exploration, transportation, and distribution, as well as gas generation and distribution on the conventional energy front. On the renewable side, it covers firms working in solar, wind, hydro, and energy derived from agricultural and domestic waste. Additionally, it encompasses companies across the power generation, transmission, and distribution sectors.
