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Railway-related stocks lost steam on Tuesday, closing with losses of up to 20 per cent on the BSE, following Railway Minister Sadananda Gowda unveiling his maiden Budget.
Texmaco Rail & Engineering, Titagarh Wagons, Kernex Microsystems and Kalindee Rail were among the top losers, falling 5-20 per cent. Most of these stocks had opened higher (up to four per cent) and touched 52-week highs in intra-day trade, before the announcement of the Railway Budget.
Mayuresh Joshi, vice-president (institutional research), Angel Broking, says, “The markets were expecting too much from the Railway Budget. Now, they perceive the finance minister has very little elbow room to play around with in the coming Budget. This explains the fall in the markets on Tuesday, including rail-related stocks saw profit-booking.”
Among individual stocks, Texmaco Rail and Engineering tanked 20 per cent to Rs 117, sliding 22 per cent from its 52-week high of Rs 150 touched in early morning deals on BSE. Titagarh Wagons, Kalindee Rail Nirman, BEML and Kernex Mircrosysems hit their lower circuit filters of five per cent on BSE.
In the past few months, most of these stocks had seen sharp rallies on expectations the government would focus on modernisation and devise new strategies to attract private investment in Railways. “In our assessment, the Railway Budget proposals give a broad framework and the government’s vision on areas of execution. However, we’ll get to know how effective the execution is at a later stage. The broader vision seems to be in sync with the overall ambitious plans of the prime minister,” said Vaibhav Sanghavi, director (equities), Ambit Investment Advisors.
Fund mobilisation
Despite plans to modernise the railways, mobilise funds through foreign direct investment (FDI) and encourage the PPP (public-private partnership) model, the proposals don’t seem have enthused analysts much.
“This year, the Railway Budget is definitely a significant departure from the past, in terms of focus on passenger amenities, adoption of technology, capacity-building and commercial soundness. While there was discussion on PPP and FDI in Indian Railways, the Budget speech lacked details and announcements in the coming weeks will be important to understand the specifics,” said Arvind Mahajan, partner and head of infrastructure and government services, KPMG in India.
“Having said that, it is a step in the right direction and it will be to the benefit of the nation at large that these steps are implemented sooner. What we missed was any discussion on Railway Tariff Authority, as this is critical for attractive private investment in Indian Railways,” he added.
Joshi of Angel Broking says, “Though the minister has announced PPP and FDI, all this will take time to be reflected in the financials of companies in this space. I will prefer to stay away from these stocks for now. The cash flows of most companies are in a bad state. I need to see the earnings momentum to be reflected on the profit-and-loss and the balance sheet of companies in this space. I don’t see that happening, at least through the next four quarters, even if order-wins and FDI is there for these companies.”
Sanghavi of Ambit, however, feels the fall in the markets, including those in rail stocks, is normal, as investors are trying to lighten positions ahead of the Budget on July 10. As a stock strategy, he prefers to be in a wait-and-watch mode before making a fresh investment call, especially in railway-related counters.
