WITH the economy showing signs of recovery, the market is bombarded with Initial Public Offerings (IPOs). There have already been two IPOs from power sector – NHPC and Adani Power -- in the recent past, and both were oversubscribed.

If you had no part in the IPO action or were not sure if you should be, we find out ways you can make the most of this sector now. Here’s our view, step-by-step:

Firstly, is the power sector stable?
Exposure to power sector is desirable because power is deficient in our country, and companies would keep finding means and ways to provide power to consumers.

"Power is a relatively stable sector,” says Chartered Financial Analyst and CEO of Right Horizons, Anil Rego. He further adds, “The Government is keen on deploying funds into projects concerning infrastructure, power and education. Furthermore, there is considerable shortage of power in the country and this will, hence, make it a good sector for the long-term. Citing this, the Government recently approved a bulk order for power equipment, envisaging an investment of Rs 40,000 crore. However, power prices being politically sensitive, could lead to political risk for investors.”

Then, should you invest?
Chartered Accountant, Shanbhag says, “All investors should have some of their investments in this sector; only the extent will vary depending on the risk appetite."

Here, we look at various profiles of people and if they should invest:

If you can track sectors and prefer sectoral funds: The power sector is definitely an option
If you are a novice: It is best to hold diversified equity mutual funds
If you are a speculative investor: It is not very attractive in the short-term
If you don’t want to invest directly in power company shares: Power sector mutual fund is a good option if you are wary of investing directly.

Shanbhag says, “The risk gets diversified in power sector MF. Also, a power sector MF invests not only in companies directly associated with power but also those in the ancillary industries providing equipment, parts, infrastructure etc. This way, exposure of the investment gets more broad based thereby optimising risk and return.”

Rego also points out that it is not enough to just invest in MF, but you have to closely watch the market cycles and exit at right points.

How have power funds performed so far?

(NAV as on Sept 1, 2009)

Also read: I hold sector funds: Should I exit?

So what should be your time horizon?
Don’t go with the objective of staying in the market for a short-term.

Rego says, “The Adani Power, NHPC IPOs were aggressively priced with a medium to long-term perspective. A medium to long-term perspective would be appropriate ranging between 2 to 5 years, and you could invest in phases.”

Shanbhag mirrors this view, "The minimum holding period should be five years or more.”

Illustration: Vaibhav Shirke

Disclaimer: While efforts have been made to ensure the accuracy of the information provided in the content, the web site or the author shall not be held responsible for any loss caused to any person whatsoever who accesses or uses or is supplied with the content (consisting of articles and information).

e-mail: Gayathri Madhavan

Suggest a story idea! Write to us!