Reliance, ONGC, Tata, Adanis: Energy Stocks Didn't Get The Memo Of Bears, Up 12% In 30-Days; 10 Stocks To BUY

Geopolitical tensions continue to escalate, with Israel facing war on all fronts as Iran and its proxies are now directly involved, while it has been over 6 six months since the Gaza war. And, the crude oil is boiling, as the major hub, the Middle East is at a knives-edge to topple into utter haywire! This has led to sharp volatility in the stock market globally. Indian market witnessed a frenzy of selling and buying with Sensex and Nifty falling by 1% first and then escaping the bears to recover their losses. Sensex and Nifty zoomed by 1% by the end of Friday's session. However, the energy stocks did not got the memo of bears for a month now.

Even when the hysteria of buying and selling in the stock market, energy stocks maintained cool and instead gained traction. The Nifty Energy index touched an intraday high of 39,501.9, before ending flat on Friday. But the index's monthly performance is better than the Nifty benchmark which surged by 1.4%. The Nifty Energy index is up by 6% in 30 days. Except for Adani Green Energy, all stocks on the Nifty Energy index have gained.

In a month, the best-performing energy stocks are Tata Power and NTPC which gained by 12% each, followed by Indian Oil which surged 8.9% and Power Grid which zoomed by 8.2%. Also, BPCL, ONGC and Coal India advanced between 4-6%. While heavyweight and the largest Indian stock Reliance Industries gained by 3%, and that of Adani Energy Solutions was up by 3.2%. However, Adani Group's other energy giant Adani Green Energy dipped 2.5%, being the only laggard.

But brokerages like all 10 large-cap energy stocks owing to optimism going forward.

In its latest research note, Jefferies said, that power transmission is key to India's energy transition and global new energy cost leadership ambitions. India's large, highly integrated grid enables the utilisation of least-cost renewable generation sites, and by keeping the central grid access free, the government is assisting the viability of renewable projects via indirect financial support worth US$270bn."

Jefferies added, "Creating surplus transmission infrastructure and keeping it free for renewables makes economic sense, in our view, as the gains from the transition should more than offset the incremental network cost. In line with this, we estimate India's power transmission capex requirement at US$500bn+ by FY50E, c.30% of the overall energy transition capital outlay."

Here's what brokerages recommend on these top 10 energy stocks:

1. Reliance Industries (RIL): CMP: Rs 2,943.05

Goldman Sachs in its latest note said, "RIL consolidated returns are at an inflexion point in FY24 and we estimate CROCI (cash return on cash invested) will expand by ~270 bps to 12% in FY27 (highest since 2011). We estimate capex to fall sequentially, alongside a change in the mix of capex (rising share of higher returns and faster capex gestation cycle businesses) and 17% EBITDA CAGR over FY24-27E (6-10% above Bloomberg consensus in FY25/26 driven mainly by energy business due to tight diesel and gas feedstock tailwinds for the petchem business)."

The brokerage has set a target price of Rs 3,400.

2. Adani Energy Solutions: CMP: Rs 1,043.85

In its research note, Ventura Securities said, "Adani Energy Solutions Ltd (AESL) stands out as the premier private T&D entity, managing 20,422 circuit kilometers (ckm) of transmission lines and 54,600 MVA of power transformation capacity. The company has set a goal to establish 30,000 ckm of transmission lines by 2030, capitalizing on both organic & inorganic growth prospects. We value AESL at 17X EV/EBITDA and recommend BUY with a target price of INR 1,600."

3. Power Grid: CMP: Rs 281

Goldman Sachs this week said, "We initiate on Power Grid (PGRD.BO) at Buy (12-m TP of Rs355; 29% upside). We view Power Grid as the largest beneficiary of our transition-linked grid capex estimate, which think the stock is not fully pricing in. Additionally, with Power Grid's large balance sheet, low cost of debt and strong annual FCF generation, we estimate it could fund c.30% of India's grid capex by FY32E without reducing dividend payouts. We also think a cost of equity reduction led by beta compression could be another catalyst for stock re-rating."

4. ONGC: CMP: Rs 274.8

According to Jefferies, ONGC's profitability has improved above past decade averages due to reforms in crude and gas pricing. Jefferies expects ONGC to witness strong free cash flow generation and consolidated net debt reduction on profitable growth over FY24-26.

On the valuation, Jefferies said, its valuation doesn't capture adequately as ONGC stock is trading at a steeper discount to Nifty. However, any sharp jump or fall in crude oil prices would be key risks. Lastly, the brokerage initiated BUY for target of Rs 390.

5. Adani Green Energy: CMP: Rs 1,771.2

Ventura Securities said, "We initiate coverage on AGEL with a BUY for a price target of 2830(69.9x FY27 P/E) representing an upside of 49.7% from the CMP of INR 1890 over the next 24 months. While the current valuations may seem demanding, the high growth earnings trajectory should ensure that the valuations sustain. Key risks to our thesis:- Sharp slowdown in the global economy."

6. Tata Power: CMP: Rs 428

JM Financial has set a target price of Rs 439 apiece with a BUY recommendation for the near term.

7. NTPC: CMP: Rs 349.5

Earlier, Sharekhan's report said, "NTPC is our top pick in the power sector given its strong earnings growth visibility (expect 11% PAT CAGR over FY23-26E; RoE of 14%), reasonable valuation of 2x FY26E P/BV considering discount versus private power companies and a healthy dividend yield of 3%. NTPC is play on improving capex outlook for thermal power capacities and high growth in RE business. We maintain our Buy rating on NTPC with a revised PT of Rs. 425."

8. Coal India: CMP: Rs 435.75

In its latest research report, ICICI Direct said, "We have a positive view on Coal India amidst healthy volume growth on anvil, superlative return ratios (RoCE's at ~40%), healthy net cash positive b/s and its leading contribution to India's energy needs. We assign BUY rating to Coal India with target price of ₹550 wherein we have valued it at 5x EV/EBITDA on FY26E. High dividend yield of ~6% is added positive."

9. BPCL: CMP: Rs 584.5

Motilal Oswal in its latest note said, "At 1.4x FY26E P/B, we see limited downside from the current level. However, with minimal volume growth in the next two years and volatility in earnings from the marketing division, we reiterate our Neutral rating on the stock with a TP of INR620, valuing it at 1.5x FY26E P/B."

10. Indian Oil: CMP: Rs 166.8

Further, Motilal's note added, "Trades at ~10x consolidated FY25E EPS and 1.3x FY25E P/B. We reiterate our BUY rating with a TP of INR195, valuing it at 1.4x FY26E P/B."

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.