Rail Budget steamrolls steel, cement stocks 8%
25 Feb 2016
Cement and steel stocks declined up to 8% in Thursday's trade amid fears that the Rail Budget may not provide any material boost to infrastructure demand. Stocks declined even though Railway Minister Suresh Prabhu avoided the widely-anticipated freight hike in the Rail Budget.
Among the steel stocks, Jindal Steel tanked 4.03% to Rs 56, SAIL fell 1.55% to Rs 34.85, Tata Steel declined 0.71% to Rs 246.10, Bhushan Steel was down 0.74% at Rs 33.40, Katwa Udyog plummeted 8.12% to Rs 56, Birla Corporation slumped 5% to Rs 335.05 while India Cements fell 2.48% to Rs 68.80.
Other cement stocks such as ACC (down 2.56%), Ambuja Cements (flat) and UltraTech Cements (flat) failed to get a lift from Rail Budget announcements.
In 2016-17, the Rail Ministry has targeted commissioning 2,800 km of new tracks. The ministry has set targets of commissioning broad gauge lines at over 7 km per day against an average of about 4.3 km per day in the last six years.
Suresh Prabhu announced three new freight corridors in Budget 2016. All contracts for earlier dedicated freight corridor worth Rs 24,000 crore have already been awarded. The minister also plans to introduce more dedicated corridors, at least three, to link key metro cities to improve freight traffic.
One of the policy initiatives introduced in the Rail Budget is to increase the East-West freight corridor which may be extended by 5 km.
In the previous Rail Budget, the government had hiked the freight rate by 10% for urea, 6.3% for coal and 0.8 per cent for iron & steel companies. It had also lowered the freight rate for high-speed diesel by 1%. Railways have a revenue target of Rs 1.21 lakh crore in FY16, compared to Rs 1.06 lakh crore in FY15.
Data showed UltraTech Cement paid freight at Rs 1,184 per ton in the December quarter, while others cement-makers such as ACC (Rs 1,135/ton), Ambuja Cements (Rs 1,131/ton), JK Lakshmi Cement (Rs 911/ton) and Ramco (Rs 907/ton) also paid significant freight charges in the quarter gone by.
Steady freight rates also offered some relief to the steel sector. Of late, the government has taken steps to shield the domestic steel industry from cheap imports.
The government has recently set a minimum import price on 173 steel products ranging between $341-$752/ton, which would remain in place for six months. In September 2015, a 20% safeguard duty was imposed by the government on certain flat steel products, including hot-rolled coils for 200 days.
Between 2011-12 and 2014-15, the share of freight earnings in total traffic earnings jumped from 66.8% to 67.4% for the railways.
In the 11th Plan period (2007-12), the freight movement registered a compounded annual growth rate of 5.8%.