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Booming demand for Indian coal is driving up the shares of miner Coal India and power generator NTPC Ltd, state giants investors once dismissed as plodding dinosaurs, but which are now outperforming the wider market and global peers.

NTPC, which produces mostly coal-fired power, has surged 78%, far ahead of a gain of 17% in the broader Nifty Index, while shares of Coal India are up 55% for their best year in 2023.

Already the most coal-dependent major economy, India's reliance on the fuel for power generation is set to rise for a third straight year as the addition of renewables slows, giving the two giants a boost.

Analysts expect their efforts to boost efficiency and access to cheap capital to extend the rally, with most recommending that shareholders buy more of the two stocks or retain their holdings, LSEG data shows.

By comparison, shares of coal miners elsewhere, such as Indonesia's Adaro Energy, Australia's Whitehaven Coal and U.S.-based Peabody plummeted this year. Shares of China Shenhua and China Coal Energy rose, but less than the Indian companies.

Among coal-fired power generators, South Korea's KEPCO, U.S.-based Duke Energy and American Electric Power suffered sharp declines. Russia's Inter RAO shares rose 16.2%.

Still, with a price to earnings ratio of 7.63, Coal India is cheaper than major Chinese peers, and NTPC is undervalued, compared with many Chinese and American counterparts.

Foreign funds have been boosting their stakes, despite tougher global environmental, social and governance (ESG) norms for institutional investors.

NTPC investors include the asset management units of Goldman Sachs and Nippon Life, Vanguard and Blackrock, while Fidelity, Mellon Investments and Charles Schwab figure among Coal India's top 20 shareholders, LSEG data showed.

"Foreign shareholding in the company has steadily moved higher over the last two years, highlighting the dialing-down of the ESG discount," JPMorgan said in an August note on Coal India.

Both companies were long seen as dividend stocks.

Of the eight years of growth the Nifty saw in the last decade, Coal India and NTPC outperformed it just once each. Coal India lost 57% of its value in the decade through 2020, while NTPC lost more than a third.

Since 2021, NTPC has tripled in value to $34 billion, while the world's largest coal miner has grown 2.5 times to $26 billion.

In an October note titled, "This elephant can dance," Bobcaps said NTPC's lower cost of debt gave it an edge in the power industry and it stood to benefit from the government's view that thermal additions were key to stability.

NTPC, the only major Indian company still adding coal-fired capacity, is also boosting coal output from its own mines, while Coal India is slashing thousands of jobs a year and outsourcing some operations to boost margins.

While most of the miner's sales are on low-margin, long-term contracts to utilities, surplus output has allowed bigger spot sales in the lucrative auction market. By comparison, tightening funding has choked global coal miners.