“The decision to resume passenger trains in a phased manner is indicative of the fact that more openings are on the cards. There is a consensus now that extension of the lockdown will do more harm than good,” said V. K Vijayakumar, chief investment strategist at Geojit Financial Services.
The outlook for the railway sector, he says, is set to improve but, from the markets
perspective, there are better opportunities elsewhere.
“There will be a preference for private transport in the present context as social distancing is difficult to be maintained in railways. Two-wheelers, therefore, will witness much better demand conditions going forward,” he suggests.
Shutting passenger services lead to stoppage of around 12,500 trains on a daily basis – including 9,000 passenger trains and 3,500 mail/express trains, reports suggest. The Railways, however, has been running freight services.
“We have been under lockdown for over 50 days, but this can’t continue indefinitely. Therefore, the move is indicative of resumption of economic activity in the country. However, the stocks are still not attractive yet. Despite the passenger trains resuming, they have already incurred huge losses and another 2 quarters look weak. Therefore, I would suggest investors to wait for a couple of months, let the initial euphoria die down, and buy when normalcy returns,” says AK Prabhakar, head of research at IDBI Capital.
Owing to the lockdown, passenger earnings for FY20 contracted marginally by 1.07 per cent to Rs 50,472.20 crore. Earnings for March, however, dropped 62.36 per cent, while the national transporter saw a loss of Rs 463.30 crore in the first 20 days of April, down 115.49 per cent from Rs 2,990.8 crore during the same period in 2019.
Harendra Kumar, managing director for institutional equities at Elara Capital also believes the decision to resume services, even though partially, will not have a material impact on the sector and the decision must be seen only as a sentiment boost.
“The announcement only shows that the government is looking at restarting the industry and wants to bring life back on track. That said, this will only reduce risk premium in the markets
and doesn’t make railway-related stocks attractive. It might be positive for IRCTC
in the short-term but nothing beyond that,” he suggests.