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• The cash-starved power sector has been receiving help from unexpected quarters. Asset management companies have increased their lending to power generation and transmission companies this year even as analysts warn that bleak sectoral outlook has heightened the risk of payment defaults. Higher yields are luring mutual funds to buy debt papers of power companies, money managers said. Overall debt exposure of mutual funds to power sector shot up 35% to aroundRs 1,613 crore between January and October this year. Excluding investments in power finance companies and NBFCs, the mutual fund industry has about 1% exposure to core power generation, transmission and equipment companies as of end-October.
• Most fund managers are buying more papers of power companies as these papers offer 75-100 bps higher yields than bank CDs, which are now quoting over 9.25%. To make a comparative reference, a Tata Steel paper gets traded at 9.75% while a Tata Power paper quotes 10.25-10.50%. Only about 20% of the money invested by mutual funds are in commercial papers, the remaining chunk being in bonds of power companies. "Yields have been pretty good in power sector issuances. Most power companies have good capital adequacy ratios; these companies have a robust receivable model. There is good demand for power in this country. These factors make power companies attractive to investors," said Sujoy Das, head of fixed income at Religare Mutual Fund.
• "Higher coal prices and poor transmission/distribution infrastructure are the only two factors plaguing power companies. We don't expect repayment defaults by power companies. Most of our investments are in high quality graded papers," Das said. Industry exposure to power generation companies like NTPC, Tata Power, JSW Energy and Reliance Utilities & Power has risen 112% to Rs 1,431 crore since January this year, according to data sourced from ICRA and Bonanza Portfolios.

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