The government's decision to temporarily exempt four China-linked power equipment manufacturers from security clearance requirements for government contracts is unlikely to materially alter the competitive landscape for Indian transmission and distribution equipment makers, with recent market concerns appearing overstated, according to a report by Nomura.
The brokerage said the sell-off in listed transmission and distribution equipment stocks following the June 24 notification reflected an "overreaction to a narrow exemption", as the relaxation is limited to four specified companies, is valid for only two years and explicitly states that it will not serve as a precedent.
The Ministry of Finance has exempted TBEA Energy India, Nanjing Electric India, New Northeast Electric India and Taikai Electric India from the security clearance requirement under the Public Procurement Order, allowing them to bid for government and public sector power contracts until 2028.
Nomura said the exemption was introduced primarily to ease supply bottlenecks in India's transmission expansion programme rather than reopen the market to Chinese imports. It applies only to Chinese manufacturers with production facilities in India and is intended to improve equipment availability for grid projects. Faster equipment supply could, in turn, support execution of India's transmission capital expenditure programme, the brokerage said.
The report argued that fears of increased competition are exaggerated because the exempted companies have historically held only a limited share of the market. Together, the four manufacturers accounted for just 9% of Power Grid Corporation of India's transmission-related tenders awarded between FY09 and FY20, despite operating in an unrestricted bidding environment during that period. Nomura attributed this to stringent technical qualification norms, execution track record requirements, after-sales service capabilities and customer preference for established suppliers. These factors remain unchanged despite the exemption.
Among the four companies, TBEA Energy India is the only manufacturer with a sizeable, well-established transformer and reactor manufacturing base operating close to optimal utilisation, according to the report. The other three companies appear to have underutilised facilities and would likely require fresh capital expenditure before materially expanding production capacity, suggesting that the near-term competitive threat is effectively concentrated in one player.
Nomura also argued that the exemption's two-year duration is too short to justify significant new investments in manufacturing capacity. It expects the companies to utilise existing facilities rather than undertake fresh expansion, reducing the likelihood of any sustained shift in market share. The brokerage added that the temporary and narrowly defined nature of the exemption also makes it less likely to signal a lasting change in procurement policy.
The report noted that the exemption is largely confined to conventional transformers, reactors and gas-insulated switchgear and does not extend to higher-value segments such as high-voltage direct current (HVDC) equipment, FACTS/STATCOM systems and grid automation, where incumbent domestic manufacturers continue to enjoy strong technological, qualification and execution advantages.
Nomura noted that the four exempted companies have historically had a limited presence in Power Grid Corporation of India tenders. Between FY09 and FY20, they collectively accounted for only 9% of transmission-related awards, with TBEA Energy India securing the largest share among them, while Nanjing Electric India, New Northeast Electric India and Taikai Electric India accounted for only a marginal portion of contracts. Nomura said diversified companies with broader product portfolios and export exposure remain well positioned. It identified GE Vernova T&D India and CG Power as its preferred stocks in the sector, citing their lower dependence on domestic public-sector transmission tenders and stronger competitive positioning across multiple product categories.
For GE Vernova T&D India, Nomura said its valuation is based on 65x June 2028 estimated earnings per share, towards the higher end of its historical trading range of 50-70 times. It identified delays in HVDC tendering, prolonged supply chain constraints and higher raw material prices as the key risks to its investment thesis.
The brokerage added that investors should monitor whether the exemption is extended beyond 2028, whether additional Chinese manufacturers are granted similar relief, fresh capacity expansion announcements by the exempted companies, the outcome of upcoming Power Grid tenders, pricing trends in transformers and gas-insulated switchgear, and broader geopolitical developments between India and China, as these factors would determine whether the competitive landscape changes materially.
Discover the latestBusiness News,Sensex, andNiftyupdates. ObtainPersonal Financeinsights, tax queries, and expert opinions onMoneycontrolor download theMoneycontrol Appto stay updated!
Find the best of Al News in one place, specially curated for you every weekend.
Stay on top of the latest tech trends and biggest startup news.