Nuclear Energy Stocks Drop Up to 6% Following US-India Deal

On February 14, shares of several nuclear energy-related companies, including BHEL, L&T, Kirloskar Brothers, KSB, Walchandnagar Industries, and Power Mech Projects, fell by up to 6%. The decline followed the announcement by Prime Minister Narendra Modi and former US President Donald Trump regarding plans to move forward with constructing American-designed nuclear reactors in India.

This development has raised concerns about the involvement of Indian firms in the country’s nuclear energy landscape.

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Revival of the Civil Nuclear Deal

The India-US civil nuclear agreement, originally signed over 16 years ago, is now being revisited. The renewed focus is on large-scale localisation and potential technology transfer to India.

While the agreement is intended to provide India with access to advanced US nuclear technology and materials, which could strengthen the nation’s energy security, certain concerns have emerged regarding its execution.

Concerns Over Technology Transfer

According to Shlok Srivastav, Co-founder & COO of Appreciate, a SEBI and IFSCA-registered firm, the deal’s focus on US-designed nuclear reactors suggests that American companies will play the leading role in this initiative.

Despite commitments to localisation, the fundamental technological expertise and design leadership may continue to rest with the US. “The primary concern is whether Indian companies will truly gain access to core technology and design capabilities,” Srivastav remarked.

Historical Context: Previous India-US Nuclear Talks

The latest discussions between Modi and Trump resemble the initial civil nuclear cooperation talks from July 2005. Those negotiations faced multiple hurdles, including India’s strict liability laws, which had previously deterred foreign participation.

At the time, US-based nuclear reactor manufacturers such as General Electric and Westinghouse had expressed strong interest in establishing nuclear reactors in India.

Stock Valuation Concerns

Beyond concerns about the limited role of Indian companies in the nuclear sector, the sharp decline in stock prices also reflects concerns over stretched valuations, according to Deven Choksey, Managing Director of DRChoksey Finserv.

Currently, Power Mech's stock is trading at a 3.2x price-to-book (PB) ratio, exceeding its five-year average of 2.6x, BHEL's PB ratio stands at 2.7x, significantly above its five-year average of 1.5x, and L&T is trading at a 5.1x PB ratio, well above its five-year average of 3.7x.

The renewed India-US nuclear agreement has sparked debate over the extent of technology transfer to Indian companies and its impact on domestic firms in the nuclear sector. While the deal aims to boost India's energy security, concerns persist regarding the domestic industry’s role and the financial implications on stock valuations.