The ongoing West Asia conflict is creating long-term investment opportunities for Indian investors, especially in renewable energy and city gas distribution (CGD) companies, according to a report by Kotak Institutional Equities.
The brokerage believes the current energy crisis is a turning point for India, pushing the country to reduce its dependence on imported fuel and accelerate the shift towards cleaner, domestic energy sources.
“The supply disruptions to crude oil, natural gas and LPG since the start of the Iran war have acutely highlighted India’s external energy dependence. Over the long-term, India may have to reduce its dependency on imported energy, and diversify its supply base, given the continued risk of periodic closure of the Strait of Hormuz (SOH) and its relevance for India’s oil and gas supplies,” Kotak Institutional Equities said in a report.
India's energy dependence
India imported 50 per cent of crude oil and natural gas through the Strait of Hormuz in calendar year 2025, up from 42 per cent in 2024 and 41 per cent in 2023, making the country vulnerable to geopolitical shocks.
Further, 55 per cent of LNG imports and 88 per cent LPG imports passed through the SoH in the first 10 months of FY26.
In addition, net energy imports account for nearly 4 per cent of GDP and 50–70 per cent of the trade deficit, underlining the economic risk.
“In this backdrop, we see faster electrification of the Indian economy as a natural corollary of the West Asia war and a potential solution to India’s energy challenges,” the brokerage said.
How to play the 'Renewables' theme?
Analysts at Kotak Equities expect the crisis to accelerate India’s transition towards renewable energy, particularly solar.
They see strong growth potential in the sector, with renewable capacity expected to expand steadily over the next decade and rooftop solar adoption gaining momentum due to government incentives.
They project solar capacity addition to rise to 10 gigawatt (Gw) by FY29 from 9 Gw in FY26.
That said, despite the long-term opportunity, the brokerage remains cautious on investment returns.
“We do not find too many good ways to play the electrification theme,” Kotak said, citing multiple challenges, including regulated returns for utilities like NTPC and Power Grid, limiting earnings upside; low profitability in solar power generation due to its commodity-like nature; and overcapacity risks in solar modules and cells, which could pressure prices and margins.
“NTPC Green is one of several players in the solar electricity generation space and has not been able to outpace the industry despite advantages of lower borrowing cost and strong parent,” Kotak analysts said.
Besides, NTPC, Power Grid, and Tata Power, they said, trade at expensive valuations compared to their growth prospects.
The report also pointed out that solar tariffs tend to fall sharply during peak generation hours, reflecting excess supply in the system.
“There is a long runway of growth for solar electricity equipment (batteries, PV modules/cells among others) companies. However, India does not have any major battery company as yet and it will see large over-capacity in both modules and cells by FY2028,” the report cautioned.
The excess capacity may lead to sharp decline in prices and profitability of modules and cells, it added.
CGD sector: Beneficiary of shift to PNG
City gas distribution companies, meanwhile, are expected to benefit from a shift from LPG to piped natural gas (PNG) after the recent supply shock for LPG, Kotak said.
The brokerage forecasts domestic PNG volumes to grow at 25 per cent CAGR over FY2026-30, and overall CGD consumption to grow at 13 per cent CAGR over the same period.
This growth is likely to be driven by rising household penetration and infrastructure expansion, it said.
Long-term challenges persist
Despite near-term tailwinds, analysts at Kotak Equities said that while PNG adoption will rise, the shift to electric vehicles (EVs) could hurt CNG demand over time, impacting CGD companies.
Additionally, growth would also slow down as penetration increases, they added.
Earnings outlook: Moderate growth for CGD players
Given this, the brokerage remains cautious on earnings growth for key listed CGD companies.
“We expect modest earnings growth rate for Indraprastha Gas Ltd (IGL) and Mahanagar Gas Ltd (MGL) over FY2026-28, given their CNG-heavy portfolios and reasonably high penetration of PNG in their licensed areas,” Kotak said.
It also flagged valuation concerns, stating that it does not see much value in IGL and MGL currently, given their high penetration levels and CNG-heavy portfolios.
Stock recommendations
In view of the long-term challenges and valuation concerns, Kotak Institutional Equities has ‘Sell’ ratings on NTPC (target: ₹325) and Tata Power (₹300), and a ‘Reduce’ rating on Power Grid (₹300). In the CGD space, the brokerage has 'Sell' ratings on Mahanagar Gas Ltd (target: ₹1,100) and IGL (₹155). ===========
Disclaimer: Views and outlook shared belong to the respective brokerages and analysts and are not endorsed by Business Standard. Readers are advised to exercise discretion.