First Newsletter - Sector Analysis

Thanks for being part of the journey

Why Sector Analysis?

For the past 4 years, I have maintained 32 to 35 stocks in my portfolio. Though 80% of investment is in 25 stocks. Recently, I felt the need to increase the count of stocks in my portfolio - to 40 in the next one year.
I am following a top-down approach. First, I am picking a sector and from the sector, I plan to pick the companies. Before this, I added another stock from the gaming sector. It was a relatively easy pick! (Will cover in future)

Sector of the Month: Renewable Energy

When it comes to picking a sector/industry, there are two investment options:

• Invest via mutual Funds

• Invest via Direct Stocks

Given the sector looked promising, I initially planned to invest in the sector fund. There are four available options:

• Tata Resources & Energy Fund

• Nippon India Power & Infra Fund

• DSP Natural Resources and New Energy Fund

• SBI Energy Opportunities Fund

To be honest, none of these is truly focusing on renewable energy. So, I have decided not to invest in the sector via mutual funds. I will go with direct stock investments. The first thing I had to do was understand the sector better. I did a sector analysis and sharing an overview with all readers.

What is the Renewable Energy Sector?

Renewable energy is a type of energy that comes from natural resources that are constantly being replenished. Unlike fossil fuels, which are finite resources, renewable energy sources can be used indefinitely without running out. Some common examples of renewable energy sources include:

Solar energy, Wind energy Hydropower, Bioenergy, and Geothermal energy. Any company from these areas should be your target company.

Renewable Energy Sector: Key Numbers

Installed renewable power generation capacity has increased at a fast pace over the past few years, posting a CAGR of 15.4% between FY16 and FY23. India has 125.15 GW of renewable energy capacity in FY23. India is the market with the fastest growth in renewable electricity, and by 2026, new capacity additions are expected to double. It means companies from this sector are going to double their topline and bottomline in this period (rough estimate).

Few numbers to take note of:

• According to Moody's, India will require $190 billion - $215 billion of investment over the next seven years to achieve the target of 500 GW of renewable energy capacity by 2030, and another $150 billion-$170 billion for electricity transmission, distribution, and energy storage.

• The non-conventional energy space in India has become highly attractive for investors and received an FDI inflow of $17.88 billion between April 2000-March 2024.

• India's renewable energy sector is set to attract over $250 billion in investments, with solar PV projects expecting $15.5 billion and battery manufacturing $2.7 billion.

What Should Investors Do?

If you already have a decent portfolio and planning to pick more stocks, consider picking stocks from this sector, if you don’t have exposure. Based on the above numbers (and I hope you will continue to learn more about the sector), it won’t be wrong to say that companies from this sector will do well in the next 5 to 15 years.

Be Careful in Picking Stocks

Stocks from this sector are hot picks - everyone wants a hand in them. So, the problem is valuation. You may not find quality stocks at fair or even premium valuation - they may be trading at a super premium. What am I going to do to handle this situation? Continue reading the future subscriptions to find the answer.

And share with your friends, so it reaches more people and I am encouraged to continue doing this!

---