Railway Stocks Surge: Railway stocks surged on Tuesday as minister Ashwini Vaishnaw retained the Railway Ministry in the PM Modi cabinet indicating policy continuity.
Ircon International shares surged five percent in early trade to Rs 265 apiece, while RailTel shares saw an almost four percent jump. RVNL shares added three percent, with recent order wins lending support to the gains. Railway financier Indian Railway Finance Corp shares also gained almost three percent.
Goldman Sachs said, “We expect the new government to stick to the fiscal consolidation path with a continued thrust on infrastructure creation through more rail network, amidst a slight tilt towards more rural spending.”
On June 11, RailTel Corp told CNBC-TV18 they are expecting good orderbook from railways this year. CMD Sanjai Kumar said Rs 1 lakh crore worth of signaling systems likely to be implemented by railways in next 4-5 years.
The firm is also expecting Kavach orders worth Rs 4,000-5,000 crore, almost the same size as its current orderbook, supporting the surge in the stock price.
Earlier last week, on June 4, stocks of railway companies fell up to seven percent as investors rushed to book profits. This reaction came on the back of initial election results that painted a different picture from exit polls, which had suggested a landslide victory for the BJP.
“Investors were very fearful of the compromises the BJP would have to make after being forced to form a coalition government,” said Sonal Varma, an economist at Nomura Holdings.
Leading up to the election results, several brokerages had anticipated sectors such as PSU and railways to reap substantial benefits from Modi’s potential return to power, despite their already lofty valuations. However, the market sentiment took a sharp turn as the election outcome fell short of expectations.
However, with the retention of Vaishnaw as the Minister of Railways, investors are expecting that the central government will continue its growth-led policy initiatives.
The railway minister will oversee the execution of several important initiatives in the Centre’s 100-day agenda, such as overhauling capacity and safety infrastructure, bringing bullet trains to India, and improving the digital user experience with a super app.
Indian Railway (IR) has had a decade of some big projects, and yet on some fronts, not much has changed. While Vande Bharat trains have cut travel time and given a facelift to the IR, recent accidents have exposed that much more needs to be done for safety.
Apart from safety concerns, the IR is also plagued by a high operating ratio. The operating ratio is a benchmark of internal efficiency that measures operating expenses against revenue and is an important marker for the railways. The lower the ratio, the healthier the IR’s finances are.
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