Shares of NTPC Ltd and Power Grid Corp. of India Ltd gained 1.7% and 3.7% on Monday after the sector regulator proposed continuation of current incentives.
In a positive surprise, the draft note from the Central Electricity Regulatory Commission (CERC) suggests continuation of the 15.5% regulated return on equity (RoE) for generation and transmission companies.
The regulated RoE has been maintained despite a noticeable reduction in interest rates. Tariff regulations are set every five years. When they were announced in early 2014, the benchmark 10-year government bond yield was at 8.8%. It’s now at 7.4%.
Tracking this, most analysts were pencilling a cut in RoE. Despite the rise in bond yields in the past year, nobody was expecting continuation of the RoE at the current level. Read More
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