Rail stocks cheer FDI move, defence scrips lukewarm

Among railway stocks, shares of wagon-maker Texmaco Rail and Engineering has gained 9% to 101 on the Bombay Stock Exchange (BSE)

A day after the Union cabinet approved foreign direct investment (FDI) proposals for the railway and defence sectors, stocks of companies in these segments ended on opposite notes. While railway-related stocks welcomed the move, action was lukewarm on defence stocks. After market hours on Wednesday, the Cabinet cleared a proposal to allow 100 per cent FDI in railway infrastructure and raised the composite FDI cap in the defence sector to 49 per cent. It, however, didn’t permit FDI in train operations and safety. While the markets cheered the proposals related to the railways, defence proposals saw a lukewarm response.

“The cabinet clearance regarding FDI in Railways is a welcome step. However, one must realise FDI has been permitted only in the construction/ infrastructure space. In defence, transfer of technology is the key. India is one of the largest buyers of arms. So, domestic manufacturers will be interested in transfer of technology from their foreign partners, which is missing in the cleared proposals. That is one reason why defence-related stocks haven’t done too well in trade on Thursday,” said Tirthankar Patnaik, director (institutional research), Religare Capital Markets. Among railway stocks, wagon maker Texmaco Rail and Engineering gained 4.5 per cent to close at Rs 95.50 on the BSE. Intra-day, the stock had surged 16 per cent to Rs 106, with nine million shares changing hands on exchanges.

Most railway stocks have underperformed the market since the Railway Budget (when the FDI proposal was unveiled), falling up to 37 per cent, against a two per cent decline in the benchmark index as of Wednesday. After a rise on expectations of reform announcements in the Budget, Texmaco Rail (down 37 per cent), Kalindee Rail Nirman (down 32 per cent), Titagarh Wagons (down 29 per cent), Kernex Microsystems (down 28 per cent), Hind Rectifiers (down 24 per cent) and BEML (down 16 per cent) plunged.

On Thursday, defence-related counters Bharat Electronics and Nelco erased their intra-day gains, closing one per cent lower at Rs 1,769 and Rs 58, respectively. In intra-day trade, Bharat Electronics hit a high of Rs 1,873, while Nelco hit Rs 60.6.

“While the government has announced a plan to increase investment, considering the record of the past few years, we believe execution is the key. In the past, the plan for increased investment through public-private partnerships has been met with a lukewarm response from private investors,” Chetan Ahya and Upasana Chachra of Morgan Stanley said in a note after the Railway Budget.

Patnaik of Religare expects rail stocks to fare well. For those seeking to play this as a theme, he recommends container-related stocks such as CONCOR and Gateway Distriparks.

Markets mark lowest close in August; IT stocks hit
The Nifty fell for a consecutive session on Thursday to its lowest close in nearly a week as information technology (IT) outsourcers such as Infosys fell after global rival Cognizant cut its annual revenue forecast.

The benchmark BSE Sensex lost 76.26 points, or 0.3 per cent, to end at 25,589.01. The broader Nifty fell 22.80 points, or 0.3 per cent, to close at 7,649.25. Both indexes also marked their lowest close since August 1.

IT outsources fell after Cognizant Technology Solutions Corp forecast its slowest full-year sales growth in its 20-year history, citing delays in booking revenue from some large deals.

Infosys fell 1.9 per cent, Tata Consultancy Services lost 1.5 per cent, while HCL Technologies ended down 1.9 per cent. Tata Motors fell 1.2 per cent on continued worries about sales in China from unit Jaguar Land Rover. Among other blue-chips, Sesa Sterlite fell 1.4 per cent while Hindustan Unilever ended down 0.8 per cent.