Seven Investment Themes That Emerge From India’s Fight Against Pollution: BofA’s Amish Shah
India’s fight against pollution has brought the country on a par with several other developing nations as well as opened up various investment themes for the coming decades, according to Bank of America.
“We have only made a beginning and a right beginning since 2015. And since 2015 if we’ve already been able to have a few first, chances are that we’ll have many more on the way forward,” Amish Shah, India equity strategist at the global financial services provider, told BloombergQuint’s Niraj Shah in an interview. He also highlighted India’s lead in auto emission norms from BS-IV to BS-VI in just three years, faster than Singapore, Hong Kong, China and Europe; it’s increased effort to expand solar capacity and continued taxes on diesel vehicles.
“The idea here is that everyone knows there is a problem but the attitude is quite positive now,” he said.
That prompted the American multinational investment bank to list seven themes that could play out, driving $401 billion of capital expenditure, saving more than 106 gigawatts of energy and cutting 1.1 billion tonnes per annum of carbon dioxide emission.
The seven themes are...
- India withdrew government subsidies on retail sale of diesel in 2014 and had raised duties in 2013.
- Jumped straight to Euro-6 equivalent global auto norms in April 2020.
- It is replacing 3.5 million agricultural pumps from diesel to solar-powered and pushing for CNG/electric buses and cars.
- India railways is set to be completely electrified by 2024.
- Railway freight capacity to increase five-eight times by 2030-40, which should reduce diesel-run freight trucks running on road.
- Rail-based freight is more than 30% cheaper than that by road on an average.
This shift would benefit sectors and companies with high logistics costs: we expect companies within retail, staples, cement, e-commerce to benefit. Besides, rail-based logistics service providers and Industrial firms, implementing rail capacities would also benefit from this theme.BofA Securities Report
- This could, however, impact toll road operators and companies linked to commercial vehicles.
More Natural Gas
- The government is attempting to increase the share of natural gas to 15% of India’s energy mix by 2030. It is currently 6%.
- LPG penetration as cooking fuel is up at 97.5% versus 56% in 2015
- India is implementing gas grids across India (worth capex of more than $16 billion) and has already awarded city gas distribution (for cooking/automobiles) licences covering 70% of the population.
Shift Towards Renewable Energy
- The country is actively encouraging solar power over thermal power.
- India is in midst of implementing world’s largest renewable energy capacity addition programme. Plans to reach capacity of 175 GW by 2022 and 450 GW by 2030.
- On the back of these additions and curtailed thermal capacity, share of renewable energy in the generation mix has expanded to 10% in FY20 versus 6% in FY14.
- Large scale power plant companies are also moving towards renewable power.
- Investment recovery from captive power plants of waste-fueled energy is much faster than traditional power plants, making it economically more viable for cement companies.
- Leads to cost curve coming down and a rise in earnings.
Stricter Pollution Regulations
- India is upgrading pollution norms across a variety of sectors: norms are stringent with curtailed timelines versus the past.
- This could lead to changes and hence new investment to cope with these changes across sectors such as auto and coal-run power plants.
Namami Gange Project To Curb Water Pollution
- The government launched the ‘Namami Gange’ project in 2014-15, with a budget of Rs 2,000 crore—a four times increase over the expenditure incurred in the past 30 years.
- Water opportunity in totality is in three parts — augmenting water resources, water connectivity and water treatment. The Namami Gange projects fits in with the last point.
- Progress has been slow because of the Covid-19 pandemic.
- Given the magnitude and relevance of problem, from a long-term perspective, the government doesn’t have an option not to work on all three opportunities.
- The second opportunity of water connectivity seems the biggest in terms of India’s listed companies space. Look at pipes, pumps and compressor companies.
Improving Efficiency Standards
- The Energy Efficiency Services has been implementing world’s largest energy efficiency drive led by innovative business models in areas such as residential/ municipal lighting, electric mobility, smart metering, agriculture pumps, air-conditioners, etc.
- India’s coal power plants are adopting better boiler technologies to curtail coal consumption/emissions by 8-20%.
- Municipalities are adopting policies on solid waste management.
- Metro rail in several cities and coastal shipping to promote transport via waterways.
- Waste to heat-based power plants.
- Reduction in packaging norms for consumer companies.
Rising Private Participation
- Twenty of India’s top 100 companies have pledged to become carbon neutral by 2030-50.
- A large percentage of active funds have included environmental, social, and corporate governance mandate.
- This is in line with a lot of large economies pledging to make those countries carbon neutral in the coming decades without any regulations.
Watch the full conversation here: