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<\/p>\nThe improving outlook for the power sector has caught the interest of dividend yield funds.<\/p>\n
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In the first four months of the current financial year (2023-24, or FY24), five of the six largest dividend yield funds have shown a notable increase in their exposure to stocks within the power sector.<\/p>\n
Some have even introduced new stocks to their portfolios.<\/p>\n
While certain stocks in the sector have consistently offered high dividends, recent months have witnessed increased interest from mutual funds (MFs) due to the anticipation of accelerated power demand growth.<\/p>\n
This is attributed to the government’s focus on manufacturing and the growing adoption of electric vehicles (EVs).<\/p>\n
“The power sector appears appealing for the next three to four years, considering the cycle has just begun.<\/p>\n
“We have maintained a bullish stance on power stocks for the past three years and continue to do so.<\/p>\n
“The sector still presents names at attractive valuations and dividend yields,” says Mittul Kalawadia, senior fund manager at ICICI Prudential Asset Management Company.<\/p>\n
At the end of July, the dividend-yield schemes of Franklin Templeton (16.4 per cent) and ICICI Prudential (11.7 per cent) held the highest allocation of power sector stocks among the larger funds.<\/p>\n
At the end of March, their exposure stood at 15.6 per cent and 8 per cent, respectively.<\/p>\n
In the case of other schemes — those from SBI, HDFC, UTI, and Aditya Birla Sun Life — exposure ranged from 3.7 per cent to 7.9 per cent.<\/p>\n
Leading choices among fund managers included Power Grid Corporation, NTPC, NHPC, and CESC, which offer dividend yields of 3.3-5.9 per cent.<\/p>\n
Dividend-yield MFs are equity schemes designed to invest in companies with a consistent record of high dividend declarations.<\/p>\n
Interest in power stocks is also emerging from other asset managers.<\/p>\n
Vikas Gupta, chief executive officer of OmniScience Capital and smallcase manager, affirms that the sector has long-term growth drivers in place.<\/p>\n
“By 2030, the government aims for electric vehicle (EV) sales to constitute 30 per cent of private car sales.<\/p>\n
“This, combined with other factors like rising household consumption and electrification of remaining railway tracks, will augment power demand,” he said.<\/p>\n
Furthermore, the government has introduced initiatives such as incorporating solar module manufacturing into the production-linked incentive scheme and issuing sovereign green bonds.<\/p>\n
Additionally, the Centre has permitted states to raise additional funds to encourage reform initiatives.<\/p>\n
During 2021-22 and 2022-23, 12 states were granted additional borrowings totalling Rs 66,000 crore to facilitate such reforms.<\/p>\n
For FY24, the government has earmarked Rs 1.43 trillion for this purpose.<\/p>\n
Analysts suggest that investors with a long-term horizon and a high risk appetite might consider exploring high-yielding power stocks.<\/p>\n
While most companies in the power sector yield around 3 per cent in dividends, Gupta cautions that high yields are not guaranteed to persist.<\/p>\n
Overall, most dividend-yield funds have higher allocations towards financial services, information technology, fast-moving consumer goods, and automotive.<\/p>\n
In the case of SBI’s dividend-yield fund, HDFC Bank, Infosys, and Tata Consultancy had the largest weights in the portfolio.<\/p>\n