Power Stocks Rally After Government Relaxes Working Capital Norms

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Electricity distribution companies were outperforming in an otherwise weak session for equity markets.

Shares of electricity distribution and generation companies were outperforming in an otherwise weak session for equity markets after government on Wednesday approved a proposal to give one-time relaxation in working capital limit norm for power distribution companies (discoms) under the Ujwal DISCOM Assurance Yojana (UDAY) to get loans as part of the Rs 90,000 crore liquidity infusion scheme. Following the government’s move, the gauges of power and utilities companies on the BSE – S&P BSE Power Index and S&P BSE Utilities Indexes surged 4 per cent.

Among the individual shares, NHPC rallied 13 per cent, Tata Power advanced 9 per cent, NTPC gained 7 per cent, Adani Transmission climbed 7 per cent, Torrent Power was up 4 per cent, CESC rose 4 per cent, Adani Power advanced 4 per cent and Power Grid gained 2.3 per cent.

According to an official statement, the Cabinet Committee on Economic Affairs approved a one-time relaxation to Power Finance Corporation (PFC) and REC Ltd for extending loans to discoms above limits of working capital cap of 25 per cent of last year’s revenues under UDAY.

One-time relaxation will help in providing liquidity to the power sector and ensure payments by discoms, it added. The COVID-19 outbreak and nationwide lockdown have exacerbated liquidity problems for the power sector.

Revenue of the power distribution companies has nosedived as people are unable to pay for the electricity consumed, while power supplies, being an essential service, have been maintained.

As of 2:48 pm, Power and Utilities indexes were up 3.75 per cent and 3.95 per cent each respectively, widely outperforming the Sensex which was down nearly 1 per cent.

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