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Stocks linked to the railways went up after the opening bell on Monday, reacting to news that came after market hours last week of an increase in passenger fares and freight rates.
It is expected that nearly Rs 9,000 crore in additional revenue that the railways make from the increased fares will translate into orders for firms involved in the rail infrastructure business. Texmaco Rail & Engineering, Titagarh Wagons and Kalindee Rail Nirman (Engineers) all ended with gains of between 1.4 per cent and 3 per cent. Railway stocks were up 0.38 per cent on average. In comparison, the benchmark Sensex was down 0.3 per cent.
Prateek Agarwal, chief investment officer, ASK Investment Managers, said the announcement of the fare hike was seen as a positive by the market. “There is a lot of optimism over the Railway Budget,” he said.
Jitendra Panda, chief executive at Peerless Securities, said the market expected the additional revenue to be utilised for improving railway infrastructure, which would have a direct impact on the amount of business that these companies do. “The railways will have more than Rs 8,000 crore for investment. It is expected that this will generate orders as the railways to invest in expansion,” he said.
The government raised fares for passengers by 14.6 per cent while freight rates were raised by 6.5 per cent on Friday. A State Bank of India report titled ‘Fare and freight hike to improve railway finances’ said higher rail prices would increase rail receipts by Rs 8,735 crore.
Three out of five rail stocks were up on Monday on a day when nearly half the stocks traded on the BSE ended with losses. Kernex Microsystems (India) and Hind Rectifiers were down 2.25 per cent and 2.38 per cent, respectively.
Railway stocks have been on an upmove since last week after news that the government might allow foreign direct investment (FDI) in the railway projects. Commerce and industry minister Nirmala Sitharaman said the government was considering 100 per cent FDI in several segments of the railway sector. Stocks had moved up between four per cent and 12 per cent on the news last week. Agarwal, however, sounded a note of caution. “…it may be a bit premature. The railways has to get its house in order first,” he said.
The railways will continue to have an operating cost ratio of 85 per cent even after the fare hike, according to the SBI report.
