Rail stocks fail to pick up steam ahead of railway budget - Economic Times

MUMBAI: For the first time in many years, railway stocks did not rally ahead of the railway budget. Indeed, many stocks came under heavy selling pressure a day before the budget, thanks to a Dalal Street conspiracy theory that the usual companies may not bag large orders.

Stocks like Titagarh Wagons, Kernex Microsystems, Hind Rectifiers, Texmaco Rail & Engineering, and Transformers & Rectifiers fell between 1% and 6% on Wednesday when the Sensex was flat. "This can be a gamechanging railway budget, but there are uncertainties over who could eventually benefit," said Sudip Bandyopadhyay, MD & CEO, Destimoney Securities. "This time, the government may prefer large engineering companies that have demonstrated capabilities of executing projects timely to give orders."

Titagarh Wagons declined 6.2% at Rs 579.20 while electronic safety equipment supplier Kernex Microsystems fell 5% to Rs 46.55. Hind Rectifiers ended 4% lower at Rs 77.84. Even during the past one week, rail stocks underperformed the broader Sensex and Nifty indices.

Profitability of railway equipment makers has declined in the past two years amid intense price war. Some have been driven to losses.

Nonetheless, in the months following the last Budget, shares of these companies have rallied on the hopes that the government's focus on infrastructure could lead to higher private investment in railways. A few stocks such as Titagarh Wagaons surged more than 170% in the past six months.

"The railway theme of a few smaller companies plays ahead of the budget each time and loses steam, post budget. However, traders offloaded their position before the budget due to uncertainty," said Devang Mehta, senior VP & head equity advisory, Anand Rathi Financial Services.

However, experts, taking a view on the broader market, are expecting a positive railway budget with more focus on increasing the railway capacity with existing infrastructure.

"We expect a renewed thrust on railways in the railway budget. The government may propose to place orders for more rolling stock for the railways, invest in increasing railways' capacity by augmenting the current infrastructure and invest in safety infrastructure in FY16," read a note by Sanjeev Prasad, senior executive director, Kotak Institutional Equities.

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