Indian power utilities are likely to maintain high capex levels, which will lead to negative free cash flow over the medium term for all rated Indian utilities - both power generators and power grid operators, Fitch Ratings says in a new report.

The sector also faces fuel shortages, lower profitability for select issuers and possible up-tick in acquisitions in power generation segment. However, rating outlook on Indian utilities remains stable in 2015 because they continue to have strong operating cash flows and healthy balance sheets.

While the new tariff order passed in 2014 will have some negative implications for issuers like NTPC (BBB-/Stable), there is now regulatory certainty on tariffs until FY19.

The power industry is likely to expand capacity by 15-18 gigawatts in 2015. While capacity will increase, fuel supply is not likely to keep pace, leading to fuel shortages for both coal-fired and gas-fired power plants in 2015, which will affect the plant load factors in the industry.

Fitch also expects there to be further consolidation in the industry in 2015, with stronger power generation companies looking to acquire smaller, distressed generation assets as well as coal upstream assets to improve vertical integration and fuel security.