Institutional equity investors have lost $3 billion on Indian coal companies since 2016

February 5, 2021: Leading Indian and institutional investors have cumulatively lost $3 billion / ₹ 22,900 cr. on underperforming companies with a high exposure to the coal sector since 2016, according to analysis (1) by research group Climate Risk Horizons.

HDFC Mutual Funds, Reliance Nippon, LIC, ICICI Prudential, DSP, Blackrock, Fidelity, Vanguard are among the institutional investors that have seen their equity holdings in coal mining and coal-based power companies underperform the benchmark S&P BSE Sensex by between 13% and 40% p.a. since 2016. The foregone earnings when compared to an equivalent Sensex portfolio total approximately ₹ 22,900 cr or $3 billion.

The report, Crash of the Titans, looked at the equity holdings and trading patterns of 15 institutional investors (2) in 8 BSE-listed entities with significant operations in the coal mining or the coal power sector, covering the time period Q4FY16 to Q2FY21. Of the 8 entities, only one, NTPC, is currently a component of the benchmark S&P BSE Sensex. The 8 coal sector entities are Adani Power Limited, Coal India Limited, Jindal Steel & Power Ltd, JSW Energy Ltd, Lanco Infratech Ltd, NTPC, Reliance Infrastructure Ltd and Tata Power.

The analysis also showed that Indian mutual funds have seen a significantly larger underperformance of their coal sector holdings than their international peers, due to heavier exposure to the sector. Most leading Indian mutual funds have seen their holdings in coal reliant companies underperform the S&P BSE Sensex by 24% or more, with HDFC Mutual Fund (31.7%) and Reliance Nippon Mutual Fund (31.9%) seeing the largest underperformance as compared to the BSE Sensex, followed by Aditya Birla Sun Life (26.5%) and ICICI Prudential MF (25.2%).

“We expected to see coal equities underperforming the Sensex, but expected that investors would have adjusted their portfolios and trades accordingly. That does not seem to be the case – for whatever reason, most institutional investors have continued to hope for a revival in coal equities, which has not materialized. As a result, there has probably not been a greater wealth destroyer for mutual fund investors than the Indian coal sector over the last five years”, said Ashish Fernandes, Lead Analyst at Climate Risk Horizons.

“Interestingly, most of the investors we looked at continue to maintain strong positions in several of these companies, raising the likelihood of continued fund. The simple question for asset managers is this: “On what parameters are India’s coal industry better placed today than in 2016? If the answer is none, then stopping losses now might be wise.”

Over the next few years, the challenges facing the industry are set to grow, with a renewed focus on controlling air pollution and environmental damage, even as global climate change action steps into high gear with renewed focus from a new US administration. Taken together, this is likely to constrain any profitability in the coal sector. Moreover, renewable energy is now by far the cheapest source of new electricity, and likely to meet the bulk of incremental demand growth.

1) Link to report:
2) The 15 institutional investor analysed are: Aditya Birla Sun Life MF, DSP MF, Franklin Templeton MF, HDFC MF, HSBC MF, ICICI Prudential MF, Reliance Nippon MF, SBI MF, UTI MF, LIC (P&GS and MF), Standard Life Aberdeen PLC< Deutsche Bank AG, Fidelity International, Vanguard Group, Blackrock.

Ashish Fernandes, Lead Analyst, Climate Risk Horizons <>
Tel: +1 857 288 9357

Responding to the report, Sundarrajan G of Puvulagin Nanbargal said, “The coal plants in question are responsible for significant pollution in terms of both air emissions and fly ash over the past few decades. Retiring them is the right thing to do environmentally, and as this report shows, will also save Tamil Nadu consumers thousands of crores. The era of coal power for electricity has come to an end - the state government must re-examine the continued construction of coal plants and shelve those that are at an early stage, instead investing in energy efficiency and clean alternatives to meet future demand.”

Apart from retiring old plants, the analysis suggests two other ways that TANGEDCO and the state government can reduce costs:

• Freeze expenditure on early stage under construction plants: the report identifies 3.5 GW of state-owned plants (refer to notes) that are in the early stages of construction – Uppur, Udangudi and Ennore Expansion. Freezing expenditure by halting construction on these plants would save over Rs.26,000 crores. Given the state’s power surplus situation and the cost advantages now enjoyed by renewable energy, CRH’s analysis shows there is no requirement for these new plants, and they will in fact end up worsening state finances if construction were to proceed.

• Gradually phasing out the most expensive power plants and replacing their generation with cheaper options, including renewables, will help reduce power purchase costs and Average Revenue Requirements. Expensive power above Rs 4/kWh can be replaced with cheaper power from renewable energy or existing higher efficiency power plants at Rs. 3/kWh or less. Hypothetically, this could generate savings of up to 6,000 crore per annum. This can be done at the end of current contract life, or (where all parties are government entities) early termination of the contract by mutual agreement, given the savings that will be generated across the system. Contracts could also be reconfigured to reward flexible generation through a premium for peaking power supply.

Notes & Contacts:
1) Full report is available at

Harshit Sharma, <> +91 85279 28839

Satheesh L, <> +91 95004 85385

Sundarrajan G, Puvalagin Nanbargal <> +91 98410 31730

Ashish Fernandes <> +1 857 288 9357