Shares of power equipment companies such as GE Vernova T&D India, Hitachi Energy India, CG Power and Industrial Solutions, Thermax and Siemens Energy rose up to 4% on July 6 a session after hitting one-month low.

Sentiment towards these stocks soured after the government allowed four Chinese power equipment manufacturers to participate in government tenders ‌for critical power projects. TBEA Energy, Nanjing Electric India, New Northeast Electric India, and Taikai Electric (India) will be the ones allowed to participate.

The participation of these Chinese companies increases competition for Indian grid equipment makers.

However, brokerages termed the Friday sell-off as "overreaction to narrow exemption".

Global brokerage Nomura said, "Order explicitly states it creates no precedent. Market players read it as a competitive threat and sold off listed power-equipment stocks such as - GE Vernova T&D India (Buy), CG Power (Buy), Hitachi Energy (not rated) and Siemens Energy (not rated). Two-year window is too short to underwrite meaningful capacity expansion in India."

Meanwhile, CLSA believes increased competition (ex-HVDC converters) is likely to weigh on pricing power & margins of domestic T&D equipment cos and Investors should be wary of lofty valuations (PE of 50-90x).

However, brokerage firm Jefferies sees the "correction as a buying opportunity". On July 3, the stocks fell 6%-10%.

On July 6, Nifty Energy index was trading nearly 1% higher. CG Power and GE Vernova T&D India were trading 3% and 2.5% higher while those of Hitachi Energy and Thermax were trading 2.3% and 2.6% higher, respectively.

Siemens Energy India shares were trading 4% higher at Rs 3,412 apiece.

"Media reports highlight that government has approved four Chinese companies (TBEA Energy, Nanjing Electric, New Northeast Electric, Taikai Electric) to supply equipment for government projects only from their Indian manufacturing facilities. Import restrictions still remain. Even with supply from these facilities, believe demand-supply mismatch remains. Remain positive on Hitachi Energy and Siemens Energy and see the correction as a buying opportunity," said Jefferies.

"As per industry sources, government is set to exempt 4 Chinese players (detailed below), having anufacturing units in India, from the restriction imposed in February 2023 for critical power projects. This exemption is valid for a period of two years (till June 2028). Most of grid companies are in midst of capacity expansion and are likely to add capacity over the next 2-3 year, which is the validity of this exemption. Should this exemption be to extend in future, long-term negative impact on margins of the incumbents, especially the 765kV GIS players cannot be ruled out Barring TBEA, most of other companies have sub-scale operations in India & are likely to take time to ramp up. Believe this exemption is to address current shortage of certain of EHV grid equipment & unlikely to allow large scale Chinese imports in sensitive areas of grid infrastructure," said Macquarie.

"Indian government has granted a two-year exemption to four Chinese electrical equipment manufacturers with manufacturing units in India, allowing them to participate in government/CPSE tenders. More important is that this exemption was granted at request of Ministry of Power, validating case led by complaints from transmission utilities struggling with price inflation on controlled supply chains. Do not see this move impacting near-term volume growth, but increased competition (ex-HVDC converters) is likely to weigh on pricing power & margins of domestic T&D equipment companies such as Hitachi, GE Vernova T&D, BHEL and CG Power. Investors should be wary of lofty valuations (PE of 50-90x) on historic peak high margins led by ‘Make in India” driven shield but now govt seems to have taken cognizance of excessive margins being made by transformer sector," said CLSA.