Mumbai: A day ahead of the Railway Budget, stocks of equipment and wagon makers continued to fall, with investors not expecting any immediate boost in terms of orders and profits for these companies.
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Kalindi Rail Nirman Ltd, which makes signalling systems, led the decline with a 4.99% fall to Rs193.15.
It was followed closely by safety equipment maker Kernex Microsystems Ltd with a 4.83% decline to Rs159.70. Electronic equipment maker Hind Rectifiers Ltd fell 4.63% to close at Rs72.05.
The benchmark Sensex index was up 0.3% to 16,286.32.
“There is a lot of potential for these companies and big announcements (in the Budget),” said Deepak Jasani, head of retail research at HDFC Securities Ltd. “But it does not translate into bigger order flows and profits for the listed companies.”
Last year, railway minister Mamata Banerjee unveiled a “Vision 2020” statement that envisaged construction of 25,000km of new tracks in the next 10 years. Some 11,000km of already announced projects are still pending. The minister has also been stressing on private sector investment in railways to realize this vision.
Graphic: Yogesh Kumar / Mint
The stocks did accelerate sharply since the start of the market rally on 9 March, based on these announcements and the overall economic turnaround. In the first week of March, the Sensex fell to 8,160.40 points, but since then it has risen 99.58%, even factoring in its fall in recent weeks.
Most wagon makers and other equipment manufacturers have posted triple-digit returns in this period, notwithstanding the fall in the past two months.
For instance, shares of wagon maker Texmaco Ltd have nearly quadrupled since March to Rs149.25, while those of Titagarh Wagons Ltd have more than tripled to Rs405.30. The promoters of Texmaco are closely related to the promoters of HT Media Ltd, which publishes Mint.
“These stocks moved up significantly in December as a few of those companies like Kernex got orders,” said D.D. Sharma, vice-president (retail research) at Anand Rathi Financial Services Ltd. “The rest of the stocks moved up in sympathy.”
But the rally has petered out as people aren’t expecting any immediate positive news and are cashing their profits, he added. The scope for these stocks to rise more is also limited because of their strong showing in the past months, as a result of which most of them have fallen 4% in the past one week. The Sensex, in comparison, has gained 0.37%.
To be sure, there is spending that will happen given the backlog, but analysts aren’t sure of how much of these allocations will go to the listed equipment makers. On the other hand, there are a set of stocks such as those in cement, steel and petroleum sectors, which transport their bulk materials through the railways.
“We expect a freight increase and also a passenger fare increase in this Budget,” said Dhananjay Sinha, economist at Centrum Capital Ltd. “To that extent, it could have a negative impact on some of those sectors.” Many of these stocks have also underperformed the Sensex since January, but those are due to sector-specific reasons such as crude oil movements and so on.