India is a country with abundant mineral resources. With growing population pressure, the demand for power consumption is also on a high. Coal-fired thermal power plants meet over 70% of energy demands. Despite a push for renewable energy sources like solar and wind, dependence on coal for thermal power is still high.
Many stocks are likely to benefit from the same and provide an opportunity to diversify your investment portfolio. If you are looking for the same, this article is for you. Read on to learn more about investing in coal companies and how to identify the best coast stocks.
How to Find High-Potential Coal Stocks in India?
With multiple companies entering the energy sector, an investor must be wary of all the considerations. Here are a few factors that must be considered for investing in stocks of Coal companies in India.
1. Financial Evaluation
Reading about the financial evaluation of a company is a must before investing in it. Price-To-Earnings and Price-To-Book ratio must be understood and analyzed over a period to know the performance of the stocks. profitability, cash flow and debt levels of a company must also be studied.
For instance, Coal India’s coal supplies have increased to 76% in FY 2024 compared to 70% in the previous financial year. The net profit of the company has increased from Rs 31,723 crores in March 2023 to Rs 37,369 crores in March 2024.
2. Operational Efficacy
When selecting a company for investment purposes, operational efficiency must be considered. Research about a company’s mineral resources and reserves to calculate overhead costs. Read about the level of technological intervention in processes and efforts made by the company towards ecological sustainability.
For instance, Coal India stock price reached a record high of Rs 527 in June 2024. The stocks went up from Rs 450 for the first time in 9 years. The company aims to increase its production to 1 billion tonnes a year to meet the escalating demand.
3. Use Technical Analysis
Every company has to adhere to certain global mining standards and regulations. To ensure sustainable growth, companies must maintain a certain amount of resources and mineral reserves. By maintaining a proper resource base and infrastructure a company can underscore its long-term potential.
For instance, Coal India continues to acquire land, increase railway capacity and has taken up first-mile connectivity projects. The aim of undertaking these projects is to increase the capacity to 1 billion tonnes.
4. Political Circumstances
Geo-political situations always have an impact on the share market. Coal companies are affected by global political circumstances. Disturbance in the Middle East and the evolving political landscape of Ukraine have changed the share market scenario worldwide.
Import rules and environmental regulations also play a crucial role in determining the rate. These factors can affect operational costs and market performance of the stocks.
5. Personal Diversification Strategy
Before you invest in stocks, go through your portfolio once to make sure that your risk is covered. Within the energy sector, invest in small-cap and large-cap companies equally.
Make sure that your investments are spread out in sectors. Technology, finance and FMCG are good investment options.
Conclusion
For investing in stocks, it is crucial to do your homework. Read about the political landscape and news of a company to ensure you invest in the right stocks. Analyzing the operational efficiency of a company and other financial details gives a clear picture of its position in the stock market. Also, always consider your risk appetite before investing.