IEX buy, sell or hold at current price ? All Questions answered here as per future of market coupling

Remembering the Glory Days of the Indian Energy Exchange

Investors still fondly reminisce about the soaring returns from the Indian Energy Exchange (IEX) stock. After the initial pandemic-induced shakeup, the bull market rallied IEX stocks from a low of INR 35 in March 2020 to a staggering INR 318 in October 2021, rewarding investors with a striking 800% return.

Having commenced operations in 2008, IEX swiftly became the dominant platform for electricity transactions in India, amassing a market share of more than 95%. By the financial year ending March 2023, IEX reported revenues of INR 401 crores, with an operating profit of INR 336 crores, yielding a remarkable operating profit margin of 84%. For comparison, the Bombay Stock Exchange, another formidable player in the equity space, operates with a 30% margin.

The Current Struggles of IEX

Despite these accomplishments, today, IEX is facing a downward trend. The stock has dropped over 60% from its October 2021 heights, and foreign institutional investors have reduced their stake from 37.74% to 17%. Why is this seemingly invincible monopoly stock losing its spark?

Understanding the Challenges: ‘Market Coupling’

Electricity is a heavily regulated business in India, where government policies hold significant sway. One such policy, ‘market coupling’, has stirred uncertainty among IEX investors.

In India, IEX competes with Power Exchange India Limited (PXIL) and Hindustan Power Exchanges (HPX). Despite the competition, IEX has maintained its monopoly thanks to superior pricing and availability of electricity for its customers. However, the recent ‘market coupling’ policy aims to equalize the trading price across all exchanges, eroding IEX’s competitive edge.

Implications of Market Coupling for IEX

The introduction of market coupling could destabilize IEX’s dominance. Under this policy, a government-appointed authority will match orders, allowing a buyer on one exchange to buy electricity from a seller on another. Consequently, IEX could lose its price-setting authority and market share. This potential shakeup is making investors nervous as they fear the end of IEX’s monopoly.

Industry Speculation and Future Prospects

The market coupling policy still has a long way to go before full implementation, and a shift in market share doesn’t necessarily spell doom for IEX’s fundamentals. Despite potential policy changes, IEX’s technological superiority and execution prowess may keep it ahead of the competition.

Moreover, IEX has diversified its offerings, launching a gas exchange and a carbon-credit exchange. Both could prove profitable in the long run. If the government decided to end all power purchase agreements (PPAs), thus directing all electricity to exchanges, it could serve as a significant boost for IEX.