Railway stocks fall on Rail Budget eve

Muted expectations on infrastructure spending and fare hike pull down scrips

Shares of companies that benefit from Railways’ investments fell an average 3.59 per cent on Monday, ahead of the Railway Budget on Tuesday. Expectations of muted expenditure on railway infrastructure and the assumption that there would be no further fare hikes may have contributed to the fall, according to analysts.

Kernex Microsystems was the worst hit, dropping 9.77 per cent by the end of trade. While Zicom Electronic Security Systems was down 5.28 per cent, Titagarh Wagons fell 5.2 per cent. Stone India, Hind Rectifiers, Kalindee Rail Nirman (Engineers), Bartronics India and BEML were down between 0.66 per cent and 4.81 per cent.

Mehraboon Jamshed Irani, principal and head (priority client group) at Nirmal Bang Securities, said the government may not increase spending on railway projects in a big way this time. “Some of the tenders that should have been given out by now are still pending. One may not immediately see major expenditure and little in the way of further fare hikes,” he said.

Railway Minister P K Bansal had hiked fares in January — the first time in 10 years.

“There are hopes that there would be some increase in ticket prices and freight rates. But there is also a fear that the Budget would be populist, which could have been reflected in the stocks today,” said Prasanth Prabhakaran, president (retail broking) at India Infoline.

Sonam Udasi, head of research at IDBI Capital, suggested that the fall in the railway-linked stocks may have more to do with the share segment they come from. “All these companies are part of the mid-cap space. There has been selling in the segment because of market nervousness,” he said.

The S&P BSE Midcap Index was down 1.2 per cent, compared to the 0.08 per cent rise in the S&P BSE Sensex, with some mid-cap stocks falling over 60 per cent during the day.

Udasi remained positive on railway stocks on expectations of higher spending. “Wagon orders have to go up if modernisation is to take place. So, there should be a fair amount of spending in railways in line with the infrastructure spending,” he said.

Irani suggested that this might be a longer term play. “Some railway stocks are decently valued now, but it may be some time before the government expenditure begins to come,” he said.