Energy stocks are finding favour with investors as India braces for a power crunch as a heatwave pressure on the country’s energy generation capabilities to meet demand and hydropower generation sees a steep drop.

What Happened: India is gearing up for its biggest power shortfall in 14 years this June due to a hydropower slump. To avoid outages, the government is delaying maintenance and restarting idle plants, Reuters reported.

Delays in launching 3.6 gigawatts of new coal plants, expected by March, have worsened the situation. Unusually, the Central Electricity Authority predicts a peak shortage of 14 gigawatts at night, when solar power isn't available.

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Efforts are underway to maximize power generation. Grid-India projects nighttime demand at 235 GW in June, with 187 GW from thermal and 34 GW from renewable sources.

On May 18, the country's peak power demand reached nearly 230 gigawatt, going past the previous peak of 223 gigawatt logged on May 6.

As demand is set to overtake supply in the coming months, investors are betting big on power stocks such as Tata Power, NTPC, Coal India and Power Grid Corporation of India.

All four stocks are hovering near all-time highs. NTPC, Coal India and Tata Power shares have more than doubled in the last year, while Power Grid’s stock has jumped over 80% in the same time.

As the heatwave worsens in parts of India and demand continues to climb, investors are betting that these stocks are likely to give them outsized returns.

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