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The Railway Budget Crash: Extreme Expectations (Premium)


The Railway Budget Crash: Extreme Expectations (Premium)

The Railway Budget was announced today. With that, stocks fell hugely today. However, since this comes after a week of an upmove, we don’t think that this move by itself is major.


The Nifty falling over 2%. Real estate was the most impacted, down over 7%, with infrastructure down 5%.

The Railway Budget Crash: Extreme Expectations (Premium)

The markets were hit by a big selling wave. However, it turns out that FIIs had net bought stocks! They bought Rs. 400 cr. worth stocks, while domestic institutions sold about 400 cr. worth as well.

It’s likely people were disappointed with the lack of big ticket announcements. It’s likely that budget expectations were high and the actual railway budget hasn’t been very friendly. Rail stocks were down big:

  • Kalindee, Titagarh Wagons and BEML were limit down at -5%, Texmaco Rail was -20%
  • BHEL was down 8%, and L&T down 4%.
  • Container Corp was down 7%

Our View

On introspection we find the Railway Budget was fairly even handed.

  • There were no spectacular announcements – unless you find it extraordinary that the railway minister wants clean trains and stations.
  • There was a focus on bringing down borrowing, and on turning a reasonable surplus (13,000 cr.).
  • There was a move to reduce the losses on passenger travel, which has already been done through fares, and focus on freight as a good source of income (from e-commerce, milk, vegetables and ports). But freight is only targeted to increase by 5% which is altogether too little.
  • They’ve taken us down the path of enhancing tourism, by creating pilgrimage trains (religious travel is probably one of the biggest elements of tourism). High speed trains will increase tourism and business travel, especially because air coverage to tourist spots is very patchy. Cleaner stations will attract tourists too, and the small things like Wifi, food courts and lifts will ensure that facilities become attractive for foreign tourists as well.

Our notes from the budget are at the end of this post.

No FDI Yet, The Big Deal

The biggest disappointment was FDI in Railways. One would have expected that announcement to have come today. But it didn’t; it was deferred to the Cabinet, which doesn’t have a set time frame to say okay. The lack of FDI means that some of the ambitious changes – of Public-Private Participation in expansion – will be stalled, as capital for some of the larger Indian infrastructure companies isn’t very easily available.

But BEML and Container Corp will benefit. The other rail companies – Kalindee Rail, Texmaco, Titagarh Wagons and others have all run up a lot so while they will see revenue, this budget isn’t going to meet the expectations of ludicrous profits.

As more train and station upgrades happen, eventually tourism will increase. But this might be limited to the religious places specifically targeted, in the near term. Which, again, has very few public companies participating.

The technology upgrade to the ticketing system is unlikely to involve anyone other than IRCTC. E-Commerce companies may benefit if the Railways streamlines parcel delivery and reduces delays. Milk transporters and truck companies could have a negative impact if the railways implements plans to move into the space, as it has mentioned in the budget.

So we don’t feel that unless the Cabinet approves FDI in Railways, we aren’t going to see major moves in the rail companies. The railway budget hasn’t been all that important in recent years, and while this year was expected to be different, it wasn’t.


Here’s a quick list of Railways announcements. (From Capital Mind)

New Stuff
Changes to Trains and Stations
  • CCTV on trains, platforms, for security and cleanliness
  • Bio-Toilets so that waste is not directly discarded on track. (Thank goodness)
  • Food courts in stations (finally)
  • Cleanliness budget up 40%
  • Wifi in A and A1 category trains, workstations in trains.
  • Logistics support to e-commerce companies by segregating pick up centers.
  • Lifts and Escalators in stations, through PPP route. I don’t know how this works – do you pay to use the lift? Why PPP if the private player sees no revenue?
  • Battery operated carts to transport the old and invalid.
Outsourcing and Private Party Participation
Where’s the money going to come from?
  • They’ll earn 1.64 trillion (lakh crore) from ops. (Link)
  • They’ll spend 1.49 trillion (lakh crore) (Link)
  • Revision in prices based on the cost of fuel.
  • They’ll borrow around 11,800 cr. which for their revenue isn’t that much. Plus, they might be able to raise it at lower costs through tax free bonds with IRFC.
Positive For?
  • BEML which makes coaches.
  • Many of the rai
    l companies like Kalindee Rail, Texmaco Rail etc. but it looks like expectations were even higher!
  • Based on the implementation, will be good for freight. Which probably means not so great for the likes of Ashok Leyland and Tata Motors which make trucks.
  • All these stocks are down big time, some limit down. However, the impact isn’t negative at all, and FDI for Railways will most likely come through after the budget.



Nothing in this newsletter is financial advice and should not be construed as such. Please do not take trading decisions based solely on the matter above; if you do, it is entirely at your own risk without any liability to Capital Mind. This is educational or informational matter only, and is provided as an opinion.

Disclosure: The authors at Capital Mind have positions in the market and some of them may support or contradict the material given above, or may involve a direction derived from independent analysis.



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