Rail-linked Stocks Surge up to 20% on Modi Effect
Shares of companies linked to the railways rallied up to 20% on Monday, as investors believed that the Narendra Modi-led government would try to revive the sector as part of its infrastructure drive. Market participants are bullish on railway stocks as Modi has been emphasising the need for improving the rail network, making it more contemporary, similar to the Japanese railway system. Kalindee Rail rallied 19.9%, Kernex Microsystems rose 19.9%, Texmaco surged 19.3%, BEML jumped 19.3%, while Hind Rectifiers gained 17.5% at the BSE on Monday. The BJP election manifesto said that the government will introduce high-speed Bullet trains, launch the Diamond Quadrilateral project for high-speed train network, build 100 new modern cities, and expedite freight and industrial corridors to improve the country’s infrastructure and create jobs. According to reports, the railway corridors Mumbai-Ahmedabad and New Delhi-Patna are on the priority list for the new government. “Investment in railway infrastructure is an economic imperative; even a small increase in incremental capex will result in significant benefits,” said Satish Kumar, analyst at Standard Chartered Securities, in a note to its clients. “Our in-depth study and on-the-ground checks of the commonly ignored railway sector reveal a .` 5 lakh-crore opportunity for companies,” Kumar added.
BJP and its allies enjoy a majority of 335 in the 543-member house, and Modi is unlikely to face much resistance in pushing reforms.
Railway stocks are still about 70% below their life-time highs of late 2007 -- the peak of the previous bull run. However, investors stayed away from these stocks as the govern- ment did not make any major announcements in the last few years. “The railway companies have not received any major orders for the last couple of years, and I hope this will change,” said Sunil Jain, head of equity research at Nirmal Bang. The Department of Industrial Policy and Promotion has been pushing for FDI in railways since August last, and this is also seen as big trigger for these companies. DIPP is in favour of 100% FDI in railway transport like elevated rail corridor projects, freight terminals, suburban corridors and dedicated freight lines.