Power sector stocks faced selling pressure amid reports of Chinese firms potentially re-entering the Indian market, but industry analysts suggest the impact may be more limited than feared. Renu Baid Pugalia, Senior Vice President – Research at IIFL Institutional Equities, provided clarity on the situation, noting that while no official government notification has lifted existing restrictions, specific approvals are being granted on a case-by-case basis.

Chinese Participation in Power Transmission Sector

Industry interactions have revealed notable developments in the power transmission and distribution (T&D) space. TBEA, a Chinese manufacturer with manufacturing operations in India since 2014, has reportedly received approval to supply high-voltage reactors to government entities for the next financial year. These components are critical for 400 and 765 kilovolt (kV) high-voltage transmission systems.

The high-voltage transmission segment currently sees active participation from domestic players including Hitachi Energy, GE Vernova T&D, and CG Power. Baid explained that approvals are being granted in the transmission space where players were previously constrained on capacities and average market pricing had increased sharply.

Market Dynamics and Pricing Concerns

Despite the sentiment overhang created by these developments, IIFL does not foresee material impact on earnings or sudden pricing disruptions. The current market environment differs significantly from earlier cycles when Chinese players aggressively undercut prices to gain market share.

Capacity utilization across the transformer and transmission equipment industry remains high, with factories operating at largely full levels. This operational backdrop is expected to prevent the sharp price declines that characterized previous periods of Chinese market entry.

Domestic Capacity Expansion Impact

A more significant factor influencing future market dynamics is the substantial domestic capacity expansion already underway. The transformer industry's manufacturing capacity is expected to nearly double within the next 12 to 15 months, representing a fundamental shift in supply dynamics.

Baid noted that whether TBEA received approval or not, market prices were expected to correct due to this capacity expansion. The domestic industry's growth trajectory suggests that pricing pressures would emerge regardless of Chinese participation, making the capacity expansion a more critical factor than foreign competition.

Current Market Assessment

The analyst emphasized that current restrictions have not been lifted wholesale, with no risk of imports at present. Instead, the development represents a selective approach where Chinese manufacturers with established Indian operations may participate in specific segments where capacity constraints have driven pricing higher.

The power transmission and distribution sector continues to benefit from strong demand fundamentals, while the industry prepares for increased competition from both expanded domestic capacity and selective Chinese participation in coming periods.

A potential rollback of restrictions on Chinese firms bidding for Indian government contracts may have limited impact on India's power and transmission sector, according to Amit Anwani, Research Analyst at PL Capital. He expects any easing of the five-year-old curbs to be selective rather than a blanket opening of the sector.

A Reuters report indicated that India's finance ministry is considering scrapping restrictions imposed in 2020 following a deadly clash between Indian and Chinese troops. These measures required Chinese bidders to register with a government committee and obtain political and security clearances, effectively barring them from competing for government contracts estimated to be worth $700.00 billion to $750.00 billion.

Industry Structure Transformation Since 2020

Anwani highlighted that the power and transmission sector has undergone significant structural changes since the restrictions were implemented. The private sector has narrowed considerably in terms of new capacity addition, with most recent large orders coming from government and state-owned entities.

Before 2020, several private power producers had relied heavily on Chinese suppliers for equipment. However, this dependence has reduced sharply due to concerns around critical technologies and national security considerations.

BHEL's Strong Order Position

BHEL has demonstrated robust performance with strong order inflows over the past two and a half years. The company's order book has crossed ₹2.00 lakh crore, providing substantial execution visibility.

Anwani noted that even if Chinese imports increase marginally, BHEL already has execution visibility due to orders secured in the last 24 months. The market is primarily focused on the company's execution capabilities, margin performance, and balance sheet health.

Transmission Sector Implications

The transmission segment has shown some market reaction to reports of possible policy easing. Companies such as ABB India and Siemens India have expressed concerns that higher competition could impact margins if restrictions are relaxed.

However, Anwani expects limited overall effect, particularly given that 40.00% to 50.00% capacity addition is planned over the next two years. The sector has already invested heavily in capacity and capital expenditure, which may cushion any competitive impact.

Strategic Sectors Likely Protected

Anwani emphasized that strategic and security-sensitive sectors are likely to remain outside the scope of any relaxation, consistent with previous approaches in power, telecom, and related areas. The real impact of any policy change will depend on the specific details of government notifications and the extent of actual easing implemented.

The analyst stressed that more clarity is needed before drawing firm conclusions on sector-wise impact, as the effectiveness of any policy change will ultimately depend on the exact notification details and implementation scope.