Here is why long-term investors can buy energy stocks on correction

There is huge potential for further growth in energy service demand in India due to a growing economy and the forces of urbanisation and industrialisation.

India’s energy sector is one of the main drivers of the economy. The pandemic has had its impact on the market and also affected this sector but its sector’s demand and growth potential remain intact, as strides will be made in the energy space to meet the demand of a growing population. It will also have a huge influence on global trends, including a successful response to climate change.

Conventional methods of energy generation using fossil fuels have not proved to be cost-effective and have been bad for the climate as well as the environment. Therefore efforts are on to reduce the cost of renewable- energy equipment and technologies in the country to lower emissions. The recent trends in the power sector indicate that thermal power will mostly be contained to super-critical technology as it has lower fuel consumption.

There is a huge potential in the energy service demand in India due to a growing economy and the forces of urbanisation and industrialisation.

There are, however, critical questions about how demand growth will be met. The conventional operating models of this sector possess many more challenges like impact on environment, by-product utilisation and variable cost optimisation.

With a growing economy and with most of the population either in the middle income group or below poverty line, affordable and clean energy is a necessity.

Recently, we saw a fall in demand of electricity due to coronavirus restrictions and oversupply of LNG as the virus killed the demand. At least three companies— Indian Oil Corporation, Gujarat State Petroleum Corporation and Petronet LNG— have asked to delay shipments slated for May and June delivery.

After the first lockdown, this sector has been rising on phenomenal terms and there have been good value buying opportunities. In our view, the sector is expected to be one of the most happening in the country for foreseeable period as the drive will not be just from the government but the socio-economic impact will be such that there will be demand not only for affordable energy but also clean energy.

Electric vehicles and their expected growth in the upcoming decade is a major issue that will severely impact oil imports but with the government pushing for cleaner cooking fuel, the demand for gas is expected to remain relatively unscathed.

The Nifty energy index has been rising for the past few weeks, suggesting gradual interest of investors in this space. The level of 19,900-19,950 will be crucial and it is expected that after a brief consolidation in this range, the index may go for another bullish run. Investors may hold their positions for short to mid-term view and investors with long-term outlook may buy on every correction.