AI Boom Powers India Power Stocks; MNCs Lead Rally

Power Sector Index Climbs Amid Strong MNC Performance

The power sector index on India's BSE recorded a notable surge of over 1.5% during Friday's intra-day trading, significantly outperforming the broader Sensex. This upward movement was predominantly propelled by strong performances from key multinational corporations operating within the sector, including ABB India, Siemens, and Hitachi Energy India. These entities experienced substantial stock price appreciation, with ABB India climbing as much as 8% to ₹6,166.95 and Hitachi Energy India reaching a new record high of ₹23,780. Siemens also registered robust gains, trading at ₹3,235. Other significant players in the power domain, such as Torrent Power, Tata Power, NTPC, and CG Power and Industrial Solutions, saw their share prices increase by 1% to 3%. The BSE Power index itself reached a 52-week high of 7,048.02 on September 23, 2025, with current trading hovering around 6,713.57, indicating strong recent momentum. The index's P/E ratio stands at approximately 27.6, reflecting investor sentiment towards the sector.

The AI Imperative and Electrification Drive

The current demand for power stocks is intrinsically linked to India's ambitious electrification agenda and the burgeoning global demand for electricity, projected to surge over 70%. For India, this translates into significant investments in expanding power generation capacity, enhancing grid reliability, and ensuring inclusive access to electricity, aiming to achieve 2,000 kWh per capita consumption by 2030. A critical new driver is the massive push for artificial intelligence (AI) infrastructure. India is positioning itself as an AI hub, seeking up to $200 billion in data center investments, with tech giants like Google, Microsoft, and Amazon making substantial commitments. The Adani Group also plans a $100 billion investment in AI infrastructure. This surge in AI demand is expected to drive the India AI data center market to $41.7 billion by 2033, growing at a 28.2% CAGR.

ABB India's recent Q4 results highlighted strong order momentum, with orders surging 52% year-on-year to ₹4,096 crore, its highest Q4 intake in five years, driven by data centers, automotive, and railways. Its order backlog stood at ₹10,471 crore, up 12% year-on-year, providing clear revenue visibility. Hitachi Energy India reported a robust Q3 performance, with profit before tax up 88.9% and profit after tax up 90.3% year-on-year, driven by strong order execution and a healthy backlog of ₹29,872.2 crore. The Union Budget's emphasis on technology-led growth, public capital expenditure, and AI data centers further bolsters this outlook. Additionally, the recent EU-India Free Trade Agreement is expected to enhance clean-energy collaboration, particularly in renewables and green hydrogen, fostering technology exchange and investment.

Valuation Concerns and Analyst Divergence

Despite the strong fundamental drivers, the valuations of these leading power sector companies present a significant point of consideration. Hitachi Energy India trades at a high P/E ratio, with figures ranging from 118.58 to 125.13, suggesting that substantial future growth is already priced into the stock. Similarly, ABB India's P/E ratio stands at approximately 67.5, and Siemens India's is around 48.4. While analysts maintain a generally positive outlook, there is divergence. Hitachi Energy India holds a consensus 'Buy' rating with an average 12-month price target around ₹23,197.69, though some user comments express caution. Siemens India also enjoys a 'Buy' consensus with price targets around ₹3,300-₹3,342, though past corporate governance concerns have been noted. ABB India presents a more mixed analyst picture, with ratings ranging from 'Reduce' to 'Buy', and price targets indicating limited upside or potential downside, such as Nomura's target of ₹4,620.

The Bear Case: Margin Squeeze and Emerging Risks

While demand appears robust, sustained execution efficiency and stringent cost management will be crucial for margin recovery across the sector, as noted by ICICI Securities. For ABB India, while Q4 orders surged, its adjusted profit after tax declined 9% year-on-year, indicating potential margin pressures despite revenue growth. The company's high P/E ratio suggests that any faltering in execution or a slowdown in order inflow could lead to significant valuation corrections. Siemens India's considerable P/E ratio implies high growth expectations, making it vulnerable to any deviations from its projected performance trajectory. A longer-term risk, particularly for data center infrastructure, is the escalating water stress in India. Experts warn that data center water consumption could more than double by 2030, intensifying scarcity risks in already water-stressed regions where many of these facilities are located. This environmental challenge could impose regulatory hurdles and increased operational costs for the broader infrastructure ecosystem supporting the AI boom.

Future Outlook and Strategic Positioning

Looking ahead, companies like ABB India, Siemens, and Hitachi Energy India are strategically positioned to capitalize on multiple growth vectors. Their diversified presence across infrastructure, grid modernization, renewables, and specialized industrial segments offers resilience. Hitachi Energy India's order backlog provides substantial revenue visibility for upcoming quarters. The management at these firms are likely to focus on navigating operational efficiencies, leveraging technological advancements, and securing further orders to maintain growth momentum. The ongoing investments in AI infrastructure, coupled with India's long-term electrification goals, suggest a sustained demand for power and automation solutions in the coming years. Analyst consensus, while mixed for some, largely leans positive for Siemens and Hitachi Energy India, indicating an expectation of continued performance.