Rail Budget 2016: What market expects and key stocks to watch out for

With the government working hard to click a balance between the industry expectations and fiscal prudence, all eyes would shift to Suresh Prabhu's Rail Budget 2016 scheduled to be unveiled on Thursday. While there remain a lot of hopes from the Rail Budget, it would be an uphill task for Prabhu to meet all expectations.     

The budget is expected to focus on massive capacity augmentation projects with an increased outlay of about Rs 1.25 lakh crore, industry watchers say Prabhu is unlikely to receive enough Gross Budgetary Support (GBS) from the Finance Ministry and will have to depend mostly on External Budgetary Resources (EBR) for funds.

Brokerage firm Motilal Oswal believes the Rail Budget will be closely watched this time along with the general Budget given it is being looked upon for its potential to rejig the investment cycle as well as bring transformative change to transportation in India.

"We expect improvement in railway finances to reflect in its operating ratio as well as provide push to the many game changing initiatives introduced by it," said MOSL in a research report.

The brokerage also said government is taking steps to decongest the existing network, improve safety of passengers and return the railways to profitability.    

A day ahead of the event, here is what brokerage expects from Prabhu's kitty to come out:

• Fare changes unlikely; no pass through of lower diesel prices
• Progress and expansion of Dedicated Freight Corridor (DFC) Rollout and expansion of high speed network
• Building of 200-kmph train coaches indegenously
• Connecting J&K, North East and hilly regions on a priority basis
• Implementation of new design coaches and vaccum toilets
• Progress towards elimination of all level crossings
• Upgradation of station complexes for comprehensive government services, skill development
• Further improvements in passenger amenities

Key stocks to watch out for

Higher railway spending in the financial year 2016-17 will be a key positive for rail equipment suppliers and contractors. MOSL recommends to look at following Railway-related stocks:

L&T, Siemens India, ABB India, Crompton Greaves and KEC International