Power stocks are likely to come under some amount of pressure after Moody’s downgraded the power sector in India to Negative outlook. There were several reasons for the downgrade. Power demand is expected to decline by 4-5% in FY21 due to slowing economic activity and cash flow problems in the light of the extended lockdown. Secondly, power companies may have to operate at lower PLF forcing lower absorption of fixed costs. In addition, the state owned distribution companies (DISCOMS) could delay payments as they rely on subsidies. Stronger players may be in a position to absorb the delays but mid-sized players may be hit hardest. However, it needs to be remembered that most power stocks have already taken deep cuts so downside risk may not be too high.