Shipping stocks making waves

Shares of shipping companies are sailing big time on the market as investors see higher profits from rising freight rates in the dry bulk carrier segment.

Over the last three weeks, share prices Mercator Lines, Shipping Corporation of India, Shreyas Shipping, GE Shipping and Varun Shipping have firmed up by 10-20 per cent on an average.

Amit Agarwal, analyst with SBI Capital Markets, said, "These stocks underperformed the Sensex and Nifty in the last one year. But now, since freight rates in the dry bulk carrier segment have firmed up, these stocks are catching investors' fancy.

"Stocks such as GE Shipping and Mercator Lines, which operate in the dry bulk carrier segment, stand to gain from this upward march. Mercator Lines is also listing its subsidiary in Singapore, which is further acting as a sentiment booster to the stock."

Chowgule Steamship gained 44 per cent in the last three weeks, Mercator Lines rose 24 per cent to Rs 68, Shipping Corporation of India (19.14 per cent) to Rs 205.45, Shreyas Shipping (18 per cent) to Rs 94.75, GE Shipping (16 per cent ) to Rs 326.95, Varun Shipping (12.16 per cent) to Rs 66.30 and Essar Shipping gained 10 per cent to Rs 40.05.

The Baltic dry freight index has been rising since March this year. The Baltic dry freight index is an index that covers dry bulk shipping rates and is managed by the Baltic exchange in London. The index provides an assessment of the price of moving raw materials through sea.

Baltic dry index has moved from 7,277 on August 24 to 7,586 just within a week. Similarly, the Baltic Capsize Index and Baltic Panamax Index have moved 594 and 137 points respectively to 10,590 and 7,472 during the same period.

Analysts maintain that investors generally consider shipping to be a risky and cyclical business. Earlier, there used to be volatility in freight rates, which kept investors away. But as freight rates are picking up, these stocks have also gained momentum.

Besides, there is a lot of scope for capacity addition for shipping companies. However, the industry still needs several tax sops as it is, currently, subjected to 12 different taxes.