India’s energy sector is at an inflection point. As the world accelerates its transition toward renewable energy sources, Indian energy companies, especially those in wind, solar, and clean energy infrastructure, are experiencing both heightened investor interest and regulatory scrutiny.
Investors planning to invest in energy stocks must look beyond stock prices and study deeper valuation and performance metrics. A calibrated approach is critical with energy stocks showing wide price swings and sector-specific sensitivities.
Pick the Right Energy Stocks: Key Metrics & Factors
When evaluating energy stocks, certain financial indicators provide insight into a company’s stability and potential. Here’s what investors should examine with the help of a screener for Indian stocks:
a. Price-to-Earnings (P/E) Ratio
A stock’s P/E ratio determines whether a stock is appropriately valued in relation to its earnings. For example, NTPC trades at a P/E of 13.60 as of June 2025, which is modest compared to other large-cap energy peers, indicating potential undervaluation.
b. Price-to-Book (P/B) Value
A stock’s P/B value reflects how the market values its net assets. Tata Power currently trades at a P/B of 4.83, which is slightly above the sector average of 2.1. This may indicate premium pricing due to its strong brand, diversified generation mix, and leadership in solar EPC and EV charging infrastructure.
c. Return on Equity (RoE)
RoE measures profitability against shareholder equity. Adani Green Energy posted a RoE of 13.72% in FY25, driven by high-margin solar operations and new capacity additions. However, its high valuation multiples also warrant caution.
d. Debt-to-Equity Ratio
ONGC maintains a conservative debt profile with a debt-to-equity ratio of 0.03, allowing more flexibility for capex and dividend payouts. This also positively affects the ONGC share price.
e. Technological Advancements
Companies investing in advanced solar modules, grid-scale battery storage, or wind-solar hybrid technologies are likely to outperform. Tata Power, for instance, has commissioned over 1.4 GW of solar capacity and leads the solar rooftop market in India. Such tech focus often correlates with long-term value creation.
f. Government Policy Alignment
Firms aligning with the National Green Hydrogen Mission, PLI schemes for solar modules, and EV infrastructure guidelines are well-positioned. NTPC Green Energy Ltd, a subsidiary of NTPC, received clearance for hydrogen blending and battery storage pilot projects, further solidifying its policy-linked growth.
Pros and Cons of Investing in Energy Stocks
Investing in stocks comes with its own set of risks, along with the profits earned. Some of the pros and cons of investing in energy stocks are listed below.
Pros Affecting Energy Stocks
- Strong Growth Outlook: India’s renewable energy sector is forecast to grow at a CAGR of 8.77% over the next five years, backed by international funding and rising domestic demand. This can benefit stocks in this sector.
- Policy Support: India aims for 500 GW of non-fossil fuel capacity by 2030, supporting long-term earnings visibility.
- Portfolio Diversification: Energy stocks often behave differently from FMCG or tech, adding balance to a retail investor’s portfolio.
Cons Affecting Energy Stocks
- Volatility: Stock prices can react to global oil prices, interest rate changes, or tariffs.
- High Capex Requirements: Long gestation periods and upfront capital commitments affect near-term profitability.
- Policy Risk: Shifts in subsidies or import duties can derail financial projections. For instance, the hike in solar panel import duties in FY24 dented margins for EPC players.
- Regulatory Delays: Clearances for large-scale projects, especially in renewables and offshore exploration, can face bureaucratic holdups, delaying execution timelines and impacting stock performance.
Conclusion
Investing in energy stocks can offer substantial long-term value, particularly in the current phase of decarbonisation and electrification. Companies like NTPC, Adani Green, and Tata Power are leading India's energy shift with robust capacity additions, strategic tie-ups, and policy-backed growth.
However, investors must analyse valuation multiples, return ratios, and debt levels, alongside staying informed on government regulations and technological trends. While opportunities in energy are vast, so are the risks. A disciplined, metric-driven approach is key to navigating this sector with confidence.
