Posted in Finance, Accounting and Economics Terms, Total Reads: 213
Definition: Utilities Sector
The ‘Utilities Sector’ refers to a stock categorization wherein companies providing utilities such as gas and power are grouped into the ‘Utilities Sector’. To elaborate, the utilities sector would contain several utility providing companies, such water, gas, electric power and integrated service providers. The constituents of the Utilities Sector comprise Utility companies that are publicly listed, and they span across large, mid and small market capitalization segments.
Generally the Utilities Sector comprises the stocks of all companies involved with the delivery of an utility, that can be electricity, water, gas or other related services (for instance, steam and cooled air). Companies that purchase and re-distribute resources, perform infrastructure maintenance are also Utility companies that find a place in the Utility Sector. The Utilities sector is in its essence, a economic sector, companies that produce and deliver (or both) utilities are included in the utilities sector.
This categorization into the ‘Utilities Sector’ is useful for stock analysts tracking utility companies which usually differ from other service firms, in that they require significant infrastructure, and hence significant financing & large amounts of debt. This implies a sensitivity to changes in interest rates, a rise or drop will increase or decrease debt payments. Consequently, the best performance of the companies comprising utilities sector is when interest rates are low or falling steadily. Thus stock value of utility sector companies are quite volatile and susceptible to interest rate changes.
Since utilities (water, electricity, gas) are essential services that are instrumental in economic and social development of a nation, the Utilities sector is all the more important in the well-being of a nation. The Utilities Sector is generally susceptible to regulatory framework and government oversight in developing countries, although this is not the case in developed countries, where private Utility sector companies exist.
An example of companies comprising the utilities sector in India are Tata Power, NTPC, and Power Grid Corporation of India.