India's growing relationship with natural gas.

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The big story

India is hungry for energy, and it's doing something about it.

The energy demand of the country, which is currently the world's largest and wealthiest, is expected to increase as its population grows.

The South Asian nation aims to quadruple its natural gas use to meet demand and achieve annual GDP growth rates of seven or eight percent by 2030.

Why is India investing in a power source that almost caused Europe to collapse recently?

The Russian invasion of Ukraine coincided with a surge in gas prices in Europe, as Moscow cut off its gas supply and threatened to hold the continent's economy hostage. Due to the nature of the gas market, buyers were forced to resort to begging, bribing, or bullying sellers to obtain gas in order to keep their homes lit.

What is the reason behind India's desire to strengthen its relationship with such an unstable energy source?

As its economy grows, maintaining the status quo means rising energy security risks.

Over 80% of India's energy demands are fulfilled by coal, oil, and solid biomass, as per the International Energy Agency. The demand for coal and oil has increased significantly due to the growing preference for 24/7 electricity and car ownership among the population.

In Russia, Iraq, and Saudi Arabia, oil made up over 70% of their imports, and these countries lack strong democratic institutions.

The Indian government has actively promoted policies that support vehicles running on compressed natural gas (CNG), which is derived from liquefied natural gas (LNG).

Electric vehicles have not been as successful as gasoline vehicles due to a lack of a good distribution network for charging, which has increased range anxiety. However, gasoline vehicles are typically cheaper to run on a per-mile basis, which has allowed sales to rise 33% this year to more than half a million vehicles, with Maruti Suzuki dominating the market.

The government has announced plans to transition one-third of heavy-duty trucks in the country from diesel to LNG as refined fuel over the next five to seven years.

Government policy promoting natural gas for domestic cooking has contributed to the growth of LNG use, with piped connections increasing by 250% to 11.9 million over seven years, according to the Institute for Energy Economics and Financial Analysis. Additionally, more than 300 million households can receive piped natural gas.

India is willing to import LNG from any source, even those with questionable reputations, as long as it helps mitigate risks in other areas of its economy. For example, natural gas is essential for producing fertilizers, and producing it domestically enhances food security.

By 2040, the demand for natural gas is predicted to double, according to Rystad Energy, a consultancy. Additionally, the research firm anticipates that India will not be able to fulfill its demand entirely through domestic sources and will need to rely heavily on imports to meet its requirements.

Government-owned companies such as Petronet and GAIL are likely to benefit from rising imports.

Both stocks will benefit from a steady rise in volume growth without increasing the cost of gas for consumers, according to investment banks like Citi and JPMorgan and local brokers.

Other distribution companies, such as Indraprastha Gas (IGL), Mahanagar Gas (MGL), and Gujarat Gas, are also expected to benefit from the increasing demand.

"JPMorgan analysts in June stated that they prefer PLNG over GAIL on the basis of a) lower valuations and b) the volatility in GAIL's gas trading segment. On the other hand, Citi analysts in August expressed their preference for GAIL, MGL, and IGL among the gas stocks."

Need to know

The Canadian government accused Indian Minister of Home Affairs Amit Shah of involvement in a plot targeting Sikh separatists in Canada, according to Canadian Deputy Foreign Affairs Minister David Morrison.

India is confident that it will achieve its 7% growth target for the 2025 financial year, according to Ajay Seth, the Secretary of the Department of Economic Affairs. Seth stated on Tuesday that the goal is attainable. Despite slower capital expenditure in certain states, Seth is optimistic about India's growth rate for the third and fourth quarters. India's fiscal year runs from April 1 to March 31 the following year.

The Reserve Bank of India revised its forecast for India's second-quarter growth from 7.2% to 6.8%. The RBI attributed this reduction to weakness in areas such as Nifty earnings forecasts and goods and service tax collections.

What happened in the markets?

Despite rising 11.4% this year, the Indian stock index has struggled to maintain momentum and has essentially traded flat this week.

The Indian government bond yield has been subdued this week, trading at approximately 6.83% with a range of 3 to 4 basis points.

According to Aravind Maiya, CEO of Embassy REITs, the number of Fortune 500 companies setting up their global capabilities centers in India is increasing. Currently, 23% of these companies have a GCC in India, and this proportion is expected to reach 43% in the next five to six years. However, these centers are no longer just support centers; they are now "transformation hubs" that engage in cutting-edge work.

Landsberg Bennett Private Wealth Management's Chief Investment Officer Michael Landsberg advised investors to diversify their portfolios beyond the U.S. for growth, specifically recommending India due to its two-to-three times higher growth rate compared to the U.S.

What's happening next week?

Keep an eye on important economic data such as the U.S. personal consumption expenditure price index and U.S. nonfarm payrolls. On Monday, Afcons Infrastructure, a construction company in India, will list.

October nonfarm payrolls in the U.S. and Caixin Manufacturing PMI in China.

November 4: Afcons Infrastructure IPO

October's U.S. ISM PMI and India's HSBC PMI final were both released on November 5th.

November 7: China balance of trade for October