Elevated valuations have often been viewed as a reason for caution, but Jefferies argues that premium valuations do not always translate into weaker stock performance. In a strategy note, the brokerage highlighted several examples from the past 15 years where sectors continued to deliver strong returns even after trading well above historical valuation averages.
According to Jefferies, sectors such as defence, NBFCs, capital goods, retail, FMCG, hospitals and hotels generated meaningful outperformance despite appearing expensive at the time. Drawing parallels with those examples, the brokerage believes India's private power companies may be entering a similar phase.
Power-ing Through
Jefferies noted that the power sector is benefiting from a combination of demand-side and supply-side drivers. Electricity demand continues to be supported by factors such as data centre growth, renewable energy investments, electrification trends and the broader focus on energy security.
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The brokerage estimates that power demand growth of around 6% annually has strong visibility, with potential upside from expanding data centre infrastructure and rising electricity consumption across sectors.
Against this backdrop, Jefferies said private power companies have emerged as key beneficiaries of the sector's structural growth drivers. Its preferred names in the space are JSW Energy, Adani Energy Solutions, Premier Energies and Siemens Energy India.
On the supply side, Jefferies pointed to ongoing capacity expansion plans among private-sector companies. Select private power producers are expected to deliver capacity growth of 11-29% annually, compared with around 4% for government-owned peers. The brokerage also highlighted improving balance sheets and advances in technologies such as battery energy storage systems, which could support future growth.
In the near term, Jefferies sees weather-related demand as a potential catalyst. It noted that El Niño-related conditions could contribute to a year-on-year increase in electricity demand, providing support to power generation companies.
The brokerage added that the power sector aligns with its broader "hard asset" investment theme, which focuses on industries benefiting from long-term infrastructure creation and capital expenditure cycles.
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