Rail stocks dip as fares follow freight hike

The hike in passenger fares in the railway budget which came within days of increase in freight rates, combined with the department’s poor track record on implementing its projects on time and within costs, pulled down stocks of most companies that work with the railways. With several members of Parliament opposing the passenger fare hike, analysts have also turned sceptical if the proposals can actually be passed.
“It is also worth noting that the freight and fare hikes are largely construed as un-populist measures from the industry from an ‘aam aadmi’ point of view,” noted Hitesh Agrawal, head of research, Reliance Securities. “Thus, there is a surprise element in these actions, as these have been taken by the Trinamool Congress (TMC), a party which has been pro-aam-aadmi. TMC has always been at the forefront of opposing fuel price hikes as it affects the common man. With the railway minister’s own party (TMC) MPs, along with the opposition against the hike in fares, whether the fare hike actually goes through or is rolled back in full or part will be an interesting development to note,” Agrawal said in his research note.
People on Dalal Street feel there could be other implications of this hike in fares. “Since passenger fare hike has come from a TMC member, now she (Mamata Bannerjee) has no moral ground to oppose petrol and diesel price hikes,” said Arun Kejriwal, director, KRIS, an investment advisory firm.
Keeping the politics aside, analysts feel that the decision to hike fares after nearly a decade is a good decision that can improve the health of the railways, but the budget proposals may not lead to strong gains for companies related to the sector. “On account of the deteriorating financial health of railways, we have seen a decline in various key investment activities like doubling of line and gauge conversion of line. The increase in freight rates and passenger fares are well directed to improve the financial strength of the railways,” said a note from Nirmal Bang Securities. “Overall the railway budget is not encouraging for railway-related companies,” the note added.
Of the nine stocks that have close relation to railways, six ended lower, while one was unchanged and two closed with gains on the BSE. Among the losers, Kalindee Rail closed 6.6% down at Rs 105, while Texmaco Rail lost 6.1% down at Rs 67. Among the gainers, Nelco closed 4.3% higher at Rs 55. Analysts said the railways’ major thrust on safety and security is a positive for Nelco, which is in the security systems business. In volatile trades on Wednesday, sensex closed 106 points higher at 17,919, at near its three-week high level. For Thursday, all eyes will be on the RBI which is slotted to announce its decision on key policy rates.
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