A 'populist' rail budget could not keep specific stocks soaring

Railway Minister Suresh Prabhu failed to cheer the sentiment on Dalal Street on Thursday. As he presented the Rail Budget 2016, the shares of railway-related stocks such as Texmaco Rail and Engineering, Kalindee Rail Nirman, Titagarh Wagons and Kernex Microsystems declined.

In his second budget Suresh Prabhu announced to double the investment in the rail sector to Rs 1.20 lakh crore for fiscal year 2017. There were expectations that the outlay would increase to somewhere around Rs 1.25 lakh crore.

Before the budget Suresh Prabhu was facing a dilemma on whether to raise fares and freight rates as railway finances have come under tremendous strain. While the falling revenue collection and increasing demand for funding various capacity augmentation projects as well as the requirement for improving passenger services demands for hiking up fares, he left the passengers fares and freight rates unchanged.

Railways had announced a 14 per cent across-the-board hike in passenger fares in 2014 during the NDA regime and a 10 per cent increase last year. The railways earned Rs 136,079.26 crore between April-January 2016 against the target of Rs 141,416.05 crore, a decline of 3.77 per cent.

A host of railway stocks are operating at very low utilisation levels. They are working on wafer-thin margins given how the order bidding happens for a lot of these rolling stock tenders. The less than expected investment, falling revenue collection of railway and yet no increase in passenger fares will definitely affect business of railway stocks. Clearly, the performance over the next few quarters is still expected to remain soft.

The stock of Texmaco Rail fell as much as 6.91 per cent, while Kalindee Rail shed 5.19 per cent. Stocks of Titagarh Wagon and Kernex Microsystems also tanked 6.95 per cent, 4.89 per cent respectively. Railway-linked technology firm Stone India slipped over 6.70 per cent.