The stock market will closely listen to minister Sadanda Gowda's railway budget today as it is the first official statement from the Narendra Modi government that will give some indication on what is in store on reforms.
What has fuelled the expectation is the BJP's election manifesto which laid a special emphasis on the infrastructure sector and railways. As per the manifesto, prime minister Narendra Modi has a plan to set up a Diamond Quadrilateral of high speed trains.
Post the elections also there have been reports of likely measures in the railway budget, such as allowing FDI in the sector, speeding up the Mumbai-Ahmedabad bullet train project and giving more role to the private sector.
The government's recent decision to increase rail fares and freight rates has given rise to expectation that the government is likely to keep it promise to roll out more reforms.
"The government justifies this steep increase stating that railway services and infrastructure are in bad shape and servicing them calls for further investment for which funds would be required. If such investment translates into railway infrastructure projects, it would be positive for companies such as Texmaco Rail, Titagarh Wagon, Larsen & Toubro, and KEC International," Kim Eng said in a recent report.
Naturally, shares of all railway-related companies stocks have been rising over the last few weeks. They are likely to be in focus today too. Here is a list:
1) Titagarh Wagons is a supplier of wagons and freight cars. According to a report on CNBC-TV18, Titagarh Wagons has soared 350 percent from its 52-week lows on expectations that the new government will place order for more rolling stock or wagons. The railways has not placed wagon orders over the last two years due to the financial constraints. Any announcement on this front will fire the stock further. HDFC Securities in a recent report said that it expects wagon demand to move up in FY15 and beyond. "Key reasons for our optimistic view are : (1) NDA govt. has made railways a focus area and gaining freight share from roads by increasing availability of wagons will help garner more resources, (2) An expected improvement in financial position of railways by reducing cross subsidisation of passenger services by freight operations and (3) Dedicated freight corridor (DFC), which will lead to increased private participation and higher wagon demand," the report said.
2) Kalindee Rail takes up railway track laying, signalling, telecommunication projects. If the railway budget makes announcements new projects, the stock is likely to rise. It has already risen to Rs 130 from its 52-week lows of 50.80 hit on 28 February this year.
3) Kernex is a company engaged in manufacturing of anti-collision systems for railways. It also makes safety and signal systems for the sector. If the minister's promised emphasis on safety materialises in the budget, the stock will get a fillip. It has closed at Rs 73.5 on Monday. Its 52-week low was 29, hit on 28 February this year. It had hit a 52-week high of Rs 80 3 June this year.
4) Texmaco Rail & Engineering is a company engaged in manufacture of freight cars. The company also holds a stake in Kalindee Rail, which gives it a presence in various segments of the railways sector. Investors are looking for cues on wagon ordering in the budget which is give a further impetus to the stock which has already risen 450 percent from its 52-week lows.
5) Container Corporation is a government-owned container train operator. Any announcement on the dedicated freight corridor will boost the sentiment for the stock. The stock has today hit a 52-week high of Rs 1,401 as investors bank on Modi's promise to focus on infrastructure growth to create more jobs. In a report in March, brokerage Nomura had said that the company is a better play than Gujarat Pipavav ("different business models but both share similar demand drivers in the form of container traffic at ports") "on the rising visibility of dedicated freight corridor (DFC) coming up by 2018". On the back of the upcoming DFC, it estimated that Container Corp's EBITDA growth will far exceed that of Gujarat Pipavav in the long term.
Apart from these stocks, all infrastructure and construction companies are likely to see buoyancy if the railway budget focuses on growth. Among them are L&T, BHEL, GMR Infra and KEC International.
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Updated Date: Jan 20, 2015 18:50:16 IST