Short Review of Railway Budget 2015-16

Review of Railway Budget 2015-16

This railway budget seems to focus on improve passenger’s commuting experience and at the same time gives a signal for investments thrust. It proposes an annual plan of Rs 1 lakh crore with support from central government of budget allocation, market borrowing, internal resources and institutional investments. The highlights of railway budget are given below:

(A) There is no hike in passenger’s fares this time. The railway minister’s statements range from additional wagons to accommodate more passengers to improving security with equal importance of cleanliness indicates the government’s intention to improve the commuting experience. Only time will tell whether these promises fulfilled or get blocked due to lack of funds investment.

(B) The revised operating ratio for this year was 91.8%. Railway Minister Suresh Prabhu has set an ambitious operating ratio of 88.5% for the financial year 2015-16. The operating ratio is the amount that the railway has to spend to earn Rs 100. A lower operating ratio helps to improve passenger amenities and creating long term assets. The proposed operating ratio will be the best in the last nine years. Lower diesel prices will certainly help to keep lower the operational ratio.

(C) The government has proposed to hike the freight rate with effect of 1st April 2015. It will increase freight earnings by 13.6% in FY 2015-16.

(D) The focus on expansion of railway’s capacity over the next five years by increasing in daily passenger carrying capacity from 21mn to30mn, increase in track length by 20% from 1,14,000 Km to 1,38,000 Km and also the rise in freight-carrying capacity 1bn to 1.5bn ton.

(E)  There are much attention to modernization of infrastructure at railway stations, signaling and electrification works, coaches and wagons. A great attention has given to dedicated freight corridor projects which can benefit many railway equipment suppliers.

(F)   ABB, BHEL, KEC International, L&T, BEML, SIEMENS, Kalindee Rail Nirman, Texmaco and Titagarh Wagons may get benefited from this year budget proposals.

Overall, the railway budget for 2015-16 showed its thrust towards investments.

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Is India Infrastructure Growth story over ...?

If you ask me above question, my answer would be no. There are still remain growth potential in this sector. Many of us have invested in infrastructure fund in last 4-5 years but return was not within expectation. There was the time when each analysts and advisor was bullish in India infrastructure growth story but somehow down the line this sector has been totally failed to generate the return. These funds are not performing well. So now what is the options those investors who have already invested in this sector fund, this is the big question? Many financial planners now giving advice to quit or stay away from these funds and invest some other promising sector.

But just stop before reaching any decision and think about once that is it wise decision to quit these funds at this moment. My opinion is different on this sector. In my opinion existing investor should increase exposure in these funds and for new investors who have some risk appetite must take the exposure in these funds now.

For those who are new investors, first understand what is the meaning of infrastructure? It includes railways, telecommunications, oil-gas pipeline, airports, electricity, roads and bridges, irrigation water supply & sanitation, ports sectors. As these mentioned sectors are backbone of our economy and government   of  india is very serious for infrastructure growth. At present we are growing at around 7% GDP growth and to achieve double digit growth, the infrastructure sector have to grow. The planning commission has provisioned fund two and half times more than previous plan.

The government now seriously working on PPP (Public Private Partnership) model for infrastructure growth. As we witnessed  the tremendous telecom sector growth  by the participation of private sector. Now PPP model is frequently using in road, airport and power sectors. The private participation will increase the efficiency of the project and complete in time bound manner. Till date project delay is the main problem in the way of infrastructure growth.

If India’s GDP grow in double digit in the next 5 year then this sector will automatically grow. Now the question is, which infra funds good for the invest now. The largest corpus fund is ICICI infra fund is available in current time. Its corpus is now around 2,114Cr Rs. now. IDFC Infra and some funds are also good fund available in this category. Do your own research also and consult from your financial planner before investing this sector fund.

The bottom line is this sector has not been performing from last 4-5 year and for new investors it is golden opportunities to take some exposure in these funds for more than 5 years in view of long run for handsome return.

Dear readers if you have some query about any financial product please feel free to ask. You are most welcome for your feedback and questions.

Regards,

Arvind Trivedi

Certified Financial Planner