India's power sector had a forgettable FY26. Muted demand growth of barely 1%, low merchant rates, and weak plant load factors dragged Q4 earnings across the board. But according to Rupesh D Sankhe, Vice President at Elara Capital, that underwhelming year may be the last of its kind for a long time.
"Next 7 to 10 years, you can fairly estimate close to 5% to 6% kind of power demand growth," Sankhe told ET Now, a sharp acceleration from the 4.5% average of the past decade and a half.
What is driving the demand surge?
The demand story is being rewritten by three powerful forces arriving simultaneously.
First, residential electrification is deepening as incomes rise and household appliance adoption accelerates. Second, industrial electrification is emerging as a structural theme, factories and commercial operations are switching from fossil fuels to grid power at scale. Third, and most importantly for the long run, electric vehicles and data centres are creating entirely new categories of electricity consumption that did not exist at meaningful scale even five years ago.
The early numbers are already confirming the trend. Peak demand touched close to 270 gigawatt in the current period, and Sankhe expects the grid to comfortably handle 280–290 gigawatt by FY27. Q1 data from April to June showed power demand growing at nearly 10%, a dramatic contrast to the full-year FY26 figure.
The capacity build-out is massive
India's installed power capacity stands at roughly 540 gigawatt today. Sankhe expects this to reach 750–800 gigawatt by 2030 and potentially 1,100 gigawatt by 2032–36, supported by a build-out across solar, wind, hydro, nuclear, and coal.
Around 100 gigawatt of capacity is currently under construction, including approximately 27 gigawatt of coal, 12–15 gigawatt of hydro, and 12 gigawatt of nuclear. Battery storage of 90 gigawatt and pumped hydro storage of 100 gigawatt are also expected to come online within the decade — critical infrastructure for managing evening peak demand as solar generation ramps up.
Critically, the grid connectivity bottlenecks that stalled renewable offtake through much of 2023–24 are beginning to ease. HVDC transmission line tenders that can evacuate large solar projects are now moving forward.
Why discoms are no longer the weak link
One of the biggest historical risks in Indian power, financially stressed distribution companies refusing to sign power purchase agreements, is fading. Discom finances have improved substantially over the past two years. Their liquidity position is stronger, renewable power tariffs are increasingly viable, and Renewable Purchase Obligation norms are pushing them to contract more clean energy.
Financing institutions like PFC, REC, and IREDA are also in a far healthier position than during the NPA crisis years of 2012–2017. Sankhe does not foresee a repeat of those systemic stress cycles.
The stocks Elara Capital likes
On valuations, Sankhe notes that power sector stocks at 2.5–3x price-to-book are not expensive given the decade-long capex supercycle ahead. His top picks span the value chain.
Among large-caps, he favours NTPC and Tata Power, both well-positioned with strong balance sheets and capital allocation track records to capture the opportunity at scale. In the mid-cap space, NLC India earns a positive rating. And with a two-to-three year view, Sankhe is also bullish on Coal India, which stands to benefit directly from higher peak demand, improved offtake, and better e-auction realisations.
The rooftop solar opportunity adds further upside, combined targets under PM Surya Ghar, PM Kusum, and industrial open access could generate 35–40 gigawatt of annual tendering activity over the next four to five years.
India's power story, in short, is just getting started.
