Rail stocks get derailed post Railway Budget

Following presentation of the Railway Budget 2015-16 on Thursday, stocks related to the Railways closed with losses of three-seven per cent, falling up to 15 per cent from their intra-day highs, as investors booked profits. Expiry of the February derivative contracts also hit sentiment.

Ahead of the Railway Budget, these stocks had seen a sharp run-up. The National Stock Exchange Nifty and the BSE Sensex closed one per cent lower at 8,684 and 28,747, respectively, on Thursday.
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“This is a good (Railway) Budget. No political constituency has been spoon-fed, as no new trains have been announced. The Railway Budget has steered clear of these populist measures and emphasised the fact that resources have to be used well. All these things are a break from the past and a step in the right direction. The central theme has been effective utilisation of resources to improve Indian Railways,” said U R Bhat, managing director, Dalton Capital Advisors.

Though the Railway Budget spared the common man from a rise in fares, it increased freight rates for commodities such as urea (10 per cent), coal (6.3 per cent), cement (2.7 per cent) and iron and steel (0.8 per cent).

“The rise in freight rates comes as a part of the package. The Railways has to generate resources to fund its plans. If passenger fares have been spared, the resource mobilisation has to happen through the freight route. Despite this, transporting goods through the Railways is much cheaper than road transport. If the turnaround time and services are improved, I think the Railways has the pricing power. People will not mind paying a bit more in terms of freight rates if there is an improvement in services,” Bhat added.

The Budget also unveiled a record investment plan of about Rs 1 lakh-crore for 2015-16, besides working on a five-year plan to transform the national carrier and invest Rs 8.5 lakh-crore during this period, the funds for which will be mobilised from multilateral development banks and pension funds.

Analysts feel if the initiatives are implemented, it will help attract private sector participation in the sector.

GOING OFF TRACK
Company	26 Feb,2015	% chg*	Day's high	Day's low
Cimmco	71.20	-7.4	81.85	69.50
Stone India	79.70	-6.1	86.40	76.80
Siemens	1280.90	-4.3	1369.00	1275.70
Kalindee Rail Nirman	135.10	-4.0	143.00	126.70
Container Corporation	1518.95	-3.5	1619.00	1502.00
Texmaco Rail	135.70	-2.5	143.00	127.30
Kernex Microsystems	46.55	0.0	48.85	44.30
Titagarh Wagons	582.10	0.5	605.00	536.80
Hind Rectifiers	89.30	14.5	92.00	77.50
Price on BSE in Rs
*Change over previous close
Data compiled by BS Research

Deven Choksey, managing director and chief executive of K R Choksey Shares and Securities, said: “The (Railway) Budget is a very powerful expression of the desire that the government has to transform and modernise the railways, which is likely to result in giant-sized activity in the economy. The amount of money it plans to spend is quite large and it is budgeting for the next five years. So, this gives a lot of confidence and clarity to people who want to invest in the initiatives the government has spelt out.”

Given the sharp appreciation in these stocks ahead of the event, analysts expected some profit-booking.

Prakash Diwan, director, Altamount Capital Management, said select stocks were trading at 20-25 times the FY16 earnings. “Having said that, I feel the services part (concierge services, catering, cleaning services, sanitation, safety, etc) of the Indian Railways seems to be a greater beneficiary compared to the manufacturing segment. The joint ventures with foreign partners will also take time to fructify and the results of the proposals will not be visible immediately. Going ahead, companies that have a good track record, a good scale of operations and the capability to manage bureaucracy in the Railways will benefit. Investors will gain more from investing in the stocks of such services-related companies,” he added.