Invest in a Sustainable Future with Mutual Funds Focused on Solar Energy

February 15, 2024 Mutual Fund

In the past, severe energy constraint hindered India’s industrial expansion and economic advancement. Consequently, installing new power plants required importing fossil fuels, which are extremely risky.

On the other hand, worldwide awareness of climate change and the global growth of renewable energy has increased in the last few years. India continues to be a part of this growth with its tremendous solar energy growth plans in the pipeline.

According to the REN21 Renewables 2022 Global Status Report, India stands as the 4th largest country in the world in terms of renewable energy capacity and wind power and ranks 5th in solar power capacity.

In a Rajya Sabha meeting in March 2023, Mr R K Singh, who serves as the Union Minister for Power, New and Renewable Energy, said, “Out of the total 168.96 GW, 64.38 GW is Solar power capacity, 51.79 GW is for Hydro, 42.02 GW Wind and 10.77 GW Bio power.”

The country is targeting about 450 Gigawatt (GW) of installed renewable energy capacity by 2030 – about 280 GW (over 60%) is expected from solar.

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India has a potential of about 50 MWp/km due to its tropical position, which has blessed it with abundant solar radiation. This amounts to an estimated potential of 748 GW if only 3% of India’s waste land is made available for solar energy installations.

[Read: Best Mutual Funds to Invest in Renewable Energy in India]

India is ranked 5th in the world with an excellent installed solar power capacity of 73.32 gigawatts (GW) as of December 2023. Driven by aggressive government targets, the market value is expected to soar to USD 238 billion by 2032 from its current USD 58 billion in 2023.

Declining solar technology costs, rising renewable energy demand, and robust government support are some of the drivers for this expansion. Utility-scale projects account for the majority of the industry’s installed capacity of 62.8 gigawatts (GW), which makes solar photovoltaic (Solar PV) technology dominant.

Key areas of concentration that are gaining popularity include off-grid solutions, solar parks, floating solar farms, green hydrogen generation, and rooftop solar for homes and businesses. In an effort to become less reliant on imports, India is aggressively expanding its indigenous solar cell and module production capacity.

Government Measures to Boost Solar Energy Generation in India…

Since the government of India began to realise the importance of solar power, it has boosted the growth of this segment. Investments are encouraged by programmes such as the Production Linked Incentive (PLI) schemes and concessional financing options.

The Indian government has expanded the financial allotment for ‘off-grid’ solar projects in the Union Budget 2023. To strengthen domestic manufacturing and establish India as a solar powerhouse, the PLI for the National Programme on High-Efficiency Solar PV Modules has been introduced. The goal of this programme is to achieve manufacturing capacity of Giga Watt (GW) scale in High-Efficiency Solar PV modules with an outlay of INR 24,000 crores.

Another important project demonstrating India’s dedication to solar energy is the Solar Park Scheme, which aims to build 50 soalr parks of 500 MW and above with a cumulative capacity of approximately 38 GW by 2025-26.

The agricultural industry in India is changing as a result of programmes like PM-KUSUM, which aims to add 30.8 GW of solar power capacity by March 2026. These projects include the construction of decentralised solar power plants, the replacement of agriculture diesel pumps with solar agriculture water pumps, and the solarization of already-existing grid-connected agriculture pumps.

[Read:  Investing in India’s Electrifying Future: Top 5 Power & Energy Sector Mutual Funds]

The solar energy business in India is a burgeoning industry with great potential for significant growth in the nation’s energy landscape. It is essential to use renewable energy resources wisely in light of the current climate catastrophe and our government’s goal of becoming net carbon zero by 2070.

If one wants to benefit from their growth potential, they can even think about investing in Indian solar business companies.

What Are Solar Energy Stocks in India?

With no emissions, solar energy is a clean, sustainable resource. Solar power has enormous energy potential that can be used by many technologies. Since they require no maintenance, solar energy systems have become more accessible in recent times for both residential and commercial applications.

Stocks or shares of businesses engaged in the manufacturing, installation, or distribution of solar energy goods or services are referred to as solar energy stocks. The main products that these solar industry sharing firms make are solar panels, inverters, and other solar energy system parts. These Indian solar energy companies also offer services including solar energy system installation, upkeep, and monitoring.

Thus, investing in solar power stocks in India may expose investors to the rapidly growing renewable energy sector. As the world embraces more sustainable energy sources, experts anticipate India’s solar industry shares to gain increasing importance.

However, due to the considerable risk involved, direct investments in stocks may not be suitable for all types of investors. Given the diversified portfolios and expert management, investing in mutual funds with a substantial allocation to such solar energy stocks could be a wise decision.

#1 – Tata Resources & Energy Fund (Sectoral Fund)

Tata Resources & Energy Fund invests in a concentrated portfolio of equity & equity-related instruments of the companies in the Resources and energy sectors in India. The scheme does invest across market cap, and as of January 2024, the fund has a 57.54% allocation in large-cap stocks and 26.01% in mid-cap stocks, with 12.09% in small-cap stocks.

Tata Resources & Energy Fund – Allocation to Solar Energy Stocks

Data as of January 31,2024
(Source: ACE MF, data collated by PersonalFN Research) 

The scheme has an overall allocation of 20.68% to stocks of companies engaged in the solar energy revolution. The highest exposure is in NTPC Ltd. and RIL.

In addition, the scheme has decent exposure to market leaders like Tata Power Company Ltd., which has a strong portfolio of 3,136 MW solar generation capacity. It has commissioned a 300 MW solar plant at Dholera, Gujrat which is India’s largest single axis solar tracker system, and India’s largest floating solar power project of 101.6 MWp in Kayamkulam, Kerala.

#2 – Nippon India Power & Infra Fund (Sectoral Fund)

Nippon India Power & Infra Fund invest predominantly in companies that are engaged in power and infrastructure space in India. The scheme currently has an AUM of Rs 3,884.94 crore and is benchmarked against Nifty Infrastructure TRI.

Nippon India Power & Infra Fund – Allocation to Solar Energy Stocks

Data as of January 31,2024
(Source: ACE MF, data collated by PersonalFN Research) 

The scheme invests across the market cap, and as of January 2024, it holds 42.80% allocation in large caps, 26.16% allocation in mid-caps and 24.26% in small caps.

Nippon India Power & Infra Fund holds maximum exposure in Solar Energy Stocks like – RIL Ltd. at 6.79%, NTPC Ltd. at 5.72% and leading companies from the green energy sector such as Sterling and Wilson Renewable Energy Ltd. and Tata Power Company Ltd.

Currently, the overall exposure to Solar Energy stocks accounts for 17.06% of the scheme’s assets.

#3 – Sundaram Infra Advantage Fund (Thematic Fund)

Sundaram Infra Advantage Fund invests in equity/equity-related instruments of companies engaged either directly or indirectly in infrastructure – and infrastructure-related activities or expected to benefit from the growth and development of infrastructure.

The scheme invests across market cap, and as of January 2024, it holds 59.51% allocation in large caps, 15.67% allocation in mid-caps and 21.26% in small caps.

Sundaram Infra Advantage Fund – Allocation to Solar Energy Stocks

Data as of January 31,2024
(Source: ACE MF, data collated by PersonalFN Research) 

The scheme holds a maximum exposure of 7.35% in RIL Ltd stocks. It will begin production at its solar PV (photovoltaic) and module factory, based on REC technology in Jamnagar. Through its wholly-owned subsidiary Reliance New Energy Solar, RIL acquired a 100% stake in Norway-headquartered REC Solar in 2021 for USD 771 million (₹5,800 crore).

The scheme also allocates to green energy companies like – NTPC Ltd. (National Thermal Power Corporation), which is under the ownership of the Ministry of Power and the Government of India, which is engaged in generating electricity and other activities. Currently, the overall exposure to Solar Energy Stocks accounts for 16.48% of the scheme’s assets.

#4 Quant Focused Fund (Focused Fund)

Quant Focused Fund aims to seek to generate capital appreciation & provide long-term growth opportunities by investing in a focused portfolio of Large Cap – ‘blue chip’ – companies. As of January 2024, the fund has a 70.78% allocation in large-cap stocks and 12.47% in mid-cap stocks, whereas 4.80% in small-cap stocks.

Quant Focused Fund – Allocation to Solar Energy Stocks

Data as of January 31,2024
(Source: ACE MF, data collated by PersonalFN Research) 

In terms of Solar Energy Stocks, Quant Focused Fund holds a high allocation of around 9.99% in RIL. The fund also has exposure to giants from the solar energy sector, like Tata Power Company Ltd. and Adani Green Energy Ltd. which is a leading solar power producer in India. It has put on stream 551 MW solar capacity in Khavda, Gujarat, to feed the national grid. These stocks form around 15.67% of the fund’s assets.

#5 Mahindra Manulife Focused Fund (Focused Fund)

Launched in November 2020, Mahindra Manulife Focused Fund invests in a concentrated portfolio of equity & equity-related instruments of a maximum of 30 companies across market capitalisation. The scheme currently has an AUM of Rs 1,101.78 crore. It invests across market cap, of which 71.64% is in large-cap stocks, 17.04% is in mid-cap stocks, and 9.58% in small-cap stocks.

Mahindra Manulife Focused Fund – Allocation to Solar Energy Stocks

Data as of January 31,2024
(Source: ACE MF, data collated by PersonalFN Research) 

The overall allocation to Solar Energy Stocks is around 13.90%, and the highest is in stocks of Reliance Industries Ltd. The scheme also holds a fair exposure to NTPC Ltd. and NHPC Ltd.

Mutual Funds investing in Solar Energy Stocks could be a beneficial addition to one’s portfolio, provided his suitability is based on risk appetite, investment horizon, and goals.

Future Outlook – Indian Solar Energy Sector

India stands as a prominent player in the global solar revolution and not just a mere spectator. The sector is witnessesing an increased decentralisation, widespread adoption, and a surge in solar projects, all of which are indicators of a commitment to sustainable energy in the future. Numerous global trend reports from 2023 indicate that solar energy is evolving from a viable choice to a worldwide requirement.

Innovations in the solar field are both incremental and revolutionary. The range of developments is as promising as it is broad, ranging from windows that magically convert light into power to solar panels embellished with nanowires. These days, solar paint, solar farms on water, and thin, flexible solar panels are actual inventions. Thanks to these advancements, we are getting closer to a future where anything can produce clean energy.

[Read: Top 5 Mutual Funds with High Exposure to EV Revolution]

However, the solar energy industry also faces some challenges, the existing grid infrastructure needs improvement to integrate large-scale solar power efficiently. Securing land for large solar parks can be challenging due to bureaucratic hurdles and social concerns. Affordable financing options for rooftop solar projects and smaller players remain crucial.

India’s 2030 vision is a patchwork of dominance in renewable energy and a strong emphasis on green growth to combat climate change and facilitate the energy transition. The goal now has to shift to increasing the efficiency and sustainability of solar energy in order to support India’s solar dreams. Despite challenges, the Indian solar energy industry is expected to grow continuously in the coming years. As we move forward in 2024, the solar industry’s declining costs, enhanced energy storage solutions, and grid advancements take centre stage.

India’s growing population and economy will drive the demand for clean and affordable electricity. Environmental concerns and climate change are pushing India towards adopting renewable energy sources.

This article first appeared on PersonalFN here