Energy stocks provide spice to Indian market

According to Sam Mahtani, manager of the F&C Indian Investment Company, India is facing a ‘seismic shift' in its energy position providing abundant opportunities for investors.

"India's need for energy is insatiable and is driven by its rapid expansion combined with the fact that most oil and gas (75%) has to be imported", he commented. "Estimates suggest this will cost $84bn in 2009".

However, Mahtani also points to the success of Cairn India and Reliance Industries in finding oil and gas deposits in India.

In addition, both companies still have extensive and promising acreage that remains unexplored. Mahtani has significant positions in both Cairn India and Reliance Industries in his fund.

Over the next two years a generational shift in India's macro economic backdrop is expected as the energy discoveries of both Cairn and Reliance come on stream. Over this period both companies are set to increase output by 0.7 million barrels of oil and oil equivalent each day. This will account for approximately 0.5% of global oil production. It is also estimated that this will replace up to 36% percent of imports, the equivalent of $38bn.

"The new supplies of gas will enable a number of manufacturing plants and power stations to operate at optimal capacity thereby aiding India's economic expansion", he continued.

India currently has amongst the most heavily subsidised oil price in the world with the costs borne by the Government and producers and suppliers. So what does the future hold for energy demand in India?

Mahtani concluded: "In my view, the sub-continent is only going to go one way which should be good news for Cairn India and Reliance Industries, which have good records of oil discovery. Overall India has 26 sedimentary basins covering 3.14m sq km, which could contain oil and so far only 20% have been properly explored. This potential is boosted by the fact that in terms of new oil exploration India displays relatively low operational and exploratory risk for countries with deep-sea reserves".