New corridor may drive big gains for rail, infrastructure companies

IMEC may bolster India's energy security and climate goals, say experts; PSU rail stocks surge up to 20%

The India-Middle East-Europe Economic Corridor (IMEC) -- a landmark announcement made on the sidelines of the just-concluded G20 summit in New Delhi -- is expected to provide a boost to key railway and port infrastructure companies like Ircon International, Rail Vikas Nigam Ltd (RVNL), Larsen & Toubro (L&T), Tata Projects, and GMR, experts said.

Ports on the western coast of India, such as state-owned Jawaharlal Nehru Port Trust (Navi Mumbai) and Deendayal Port Authority (Kandla), the Adani group-owned Mundra Port, and APM Terminals-owned Pipavav Port, also have the potential to benefit immensely from this corridor, they said.

The proposed corridor, hailed as historic by global leaders, will be a shot in the arm for India, which still depends on West Asia for the majority of its crude oil imports. 

The IMEC will comprise an eastern corridor connecting India to the Gulf region, and a northern corridor connecting the Gulf region to Europe. It will include a railway and ship-rail transit network and road transport routes linking India, the UAE, Saudi Arabia, Israel, and Europe.

The move buoyed stocks of railway infrastructure companies like Ircon International (up 20 per cent), RVNL (up 17 per cent), and the Indian Railways funding arm IRFC (up 10 per cent) on the National Stock Exchange on Monday.

Suppliers like rail-maker Jindal Steel and Power (JSPL) and Steel Authority of India (SAIL) may also benefit if Indian companies are given priority in sourcing, according to experts. 

Though no formal deals have been signed with India yet regarding the construction of railway lines, experts indicated that Indian companies have an advantage with expertise in handling large rail infrastructure projects like dedicated freight corridors (DFCs). India has also partnered Japan through its agency JICA in the past for mega projects like DFCs, high-speed rail, and Delhi Metro, they pointed out.

Since the new corridor is seen as a counter to China’s Belt and Road Initiative, India may get a significant portion of the project to execute. “Traditionally, railway infrastructure deals in West Asia go to Chinese companies. However, we have done some major projects in the past in countries like Iraq and Saudi Arabia. If we get a good share of these projects, it will be advantageous for companies like Ircon and RVNL. Furthermore, private sector players like L&T, Tata Projects, and GMR may also stand to benefit,” said S K Chaudhary, former chairman and managing director of Ircon.

At present, Ircon is executing projects in countries like Bangladesh, Algeria, Sri Lanka, Nepal, and Myanmar. In the fiscal year 2022-23, the contribution of international projects to the total revenue of Ircon amounted to Rs 411.84 crore, accounting for 4.15 per cent of its operating turnover.

“The size of the rail projects is not clear. For example, some countries in the region are already connected by a rail line, and the ultimate aim is to bridge the missing link and connect it with the functioning ports,” Chaudhary added. 

The IMEC is also being seen as India's attempt to cut its losses on the slowly-fading International North South Transport Corridor (INSTC), through which India wanted to establish direct connectivity with central Asia, Russia, and Europe. The project has not seen much progress, even as negotiations continue on a long-term agreement for Iran's Chabahar Port, a vital cog in the plan.

But sector experts feel that the IMEC is unlikely to meet the same fate as the INSTC. “Indeed, the challenges faced by initiatives like the INSTC and Chabahar Port are important to consider when evaluating the IMEC's prospects. However, there are key differences that suggest a more optimistic outlook for the IMEC,” said Girish Aggarwal, managing director, APM Terminals Pipavav.

“The participation of a broader coalition of nations, including major economic powers like the United States and European countries, in the IMEC project brings greater financial and logistical resources to the table. This should help address some of the infrastructure and connectivity challenges faced by previous initiatives,” he said.

Experts believe that the IMEC’s dual-corridor approach, which includes both railway networks and other infrastructure enhancements, is likely to result in a more resilient and reliable supply chain, which could allay some concerns of the private sector, a facet which was missing in the INSTC. 

“The IMEC’s emphasis on economic efficiency and environmental sustainability aligns with global trends and goals, making it more attractive to both public and private sector stakeholders. This alignment of interests should encourage active participation from shipping companies and other businesses,” Aggarwal said.