Post Railway Budget 2016, wagon makers fall while engineering companies rise

MUMBAI: Shares of rail wagon and component makers plummeted on Thursday after the railway budget as there was no big ticket projects, but the thrust on building supporting infrastructure is seen boosting shares of engineering and construction companies in the space, brokerages said.

Railway minister Suresh Prabhu in his budget speech revealed plans to double investments to Rs 1.2 lakh crore for 2016-17. He increased the outlay for railway electrification by almost 50% to electrify 2,000 km and announced three more freight corridors.

Tarun Sisodia, head of research at brokerage house Anand Rathi Institutional Equities, said the forecasted investment is 21% higher than the last year “which is what we need from the government right now”.

“But given that the execution was not great in FY16, everything hinges on whether the investment for FY17 can be achieved,” Sisodia added.

Shares of Titagarh Wagons fell 8.4% on Thursday, while those of Kalindee Rail Nirman (Engineers) and Hind Rectifiers declined 8% and 6%, respectively.

Railway electrification engineering companies bucked the general trend on the bourses. KEC International shares rose 3% and Kalpataru Power Transmission gained 1% even as the benchmark indices closed in red on Thursday.

Market experts ET spoke to said investors should be selective about shares they want to pick based on the railway investments since most of the companies in this space are local players without a track record for big projects.

“Rail Budget focus on creating long-term vision on structural reforms. Capex envisaged will significantly boost economic growth. While on the one side it has left the fare part untouched, at the same time it tries to work on commuter convenience,” said Vivek Mahajan, head of research at Aditya Birla Money. “There are few railway focused stocks. Stick to frontline stocks which have seen significant correction and should benefit over a period of time,” he said.

Engineering major Larsen & Toubro, which aims to bag more government-backed projects, declined 2.4% on Thursday to close at Rs 1,086.90.

Analysts said that while the company can be a key beneficiary from the dedicated freight corridor projects, the upcoming Union Budget would be a bigger trigger for L&T, given its diversified portfolio.