Rail high-fliers bite dust

Stocks such as Kalindee Rail (NSE: KALINDEE), Titagarh Wagons (NSE: TWL), Texmaco Rail (NSE: TEXRAIL), once the high-fliers of the Indian Railway sector have bitten dust. Low-cost competition from Chinese and Spanish firms has forced these companies to enter new lines of business and look for other measures to boost revenues.

These stocks have underperformed the CNX Midcap index an average 35% since Mar 2015. 

Once the favourite of analysts, these stocks do not even find mention nowadays.

The biggest reasons for their fall are the cost-cutting drive initiated by the Indian Railways and the Chinese competition.

In a recent contract awarded by the Nagpur Metro Rail Corp, a Chinese company CRRC was chosen over the Indian manufacturers. At a time when the Prime Minister is touting Make in India, it is a concern that although the Indian manufacturer had outbid CRCC, the contract was awarded to CRCC.

In addition a Spanish company, Talgo, was allowed to make trial runs from Delhi to Mumbai without the permission of the CRS. The Commission of Railway Safety which oversees safety in rail travel and train operations was not even consulted on the trial runs.

This haste to export Indian manufacturing jobs overseas does not augur well for the Indian economy. Job losses and middle class neglect were significant reasons Trump triumphed. Rather than actively promoting job growth within the country, the Railway Minister and the Prime Minister seem to be solely focused on cost-cutting at the expense of quality and passenger safety. A recent project by Talgo in Saudi Arabia ran into trouble and was scrapped.

Mr. Modi would do well to keep the overall interests of the nation in mind and ensure that Indian manufacturing jobs stay within the country.