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Rail Budget 2016: Four key takeaways for stock market from Suresh Prabhu's second budget speech

Experts said Prabhu's wish to revamp the Railway Board and strengthen the Public Private Partnership (PPP) cell will pave the way for reforms dilapidated Railway sector has been awaiting for decades now.

What Dalal Street should read into Rail Budget

Photo: Reuters

Railway Minister Suresh Prabhu may have brought big smile on faces of consumers as he left passenger fare untouched in the Rail Budget 2016, his bid to double the capital expenditure in the rail sector to the tune of Rs 1.21 lakh crore failed to cheer the Dalal Street.

"The investment in the rail sector in the financial year 2017 will be double the average of last year, a feat never achieved before," said Prabhu.

There were expectations that the outlay would increase to somewhere around Rs 1.25 lakh crore.

However, Ajay Bodke, CEO & Chief Portfolio Manager - PMS, Prabhudas Lilladher believes the enhanced capex outlay will have a multiplier economic impact in the medium term.

HIGHLIGHTS:Rail Budget 2016

"I believe the Railway Minister has successfully navigated a very challenging economic environment and expected burden of seventh Pay Commission on salaries by presenting a growth-oriented budget that emphasizes on aggressive capacity build-up with an enhanced capex of Rs 1.21 lakh crores, that is likely to have a 5x economic multiplier on aggregate demand over the medium term," said Bodke.  

Experts also said Prabhu's wish to revamp the Railway Board and strengthen the Public Private Partnership (PPP) cell will pave the way for reforms dilapidated Railway sector has been awaiting for decades now.

WATCH VIDEO:Suresh Prabhu presents Rail Budget 2016

Below are few key takeaways that marketmen must review as they plan strategies around Rail Budget 2016:

1) Where would the money go: The focus will be on capital expenditure with a mix of various sources of funding in order to ensure the projects are given assured funding. Prabhu announced to spend Rs 8.5 lakh crore for modernization of railway infrastructure over the five years.

He also proposed to electrify 2000 kms by next year and increase the outlay for railway electrification by almost 50 per cent. Reacting to this, shares of KEC International rose over 5 per cent on the Bombay Stock Exchange.

Railways' operating ratio will be 90 per cent against the targeted 88.5 per cent for 2015-16. In other words, railways will spend 90 paise for each rupee of revenue. For FY17, the railways' operating ratio will go up to 92 per cent because of the impact of the 7th Pay Commission.

2) Where would the money come from: The minister said he is looking at monetising non-core assets, along with other revenue-generating models. He hopes to generate revenues to the order of Rs 1,84,820 crores and pegged the revenue growth at 10.1 per cent in FY17.

Railways will get Rs 40,000 crore during 2016-17 as budgetary support from the central government. Last year, Finance Minister Arun Jaitley had provided Rs 40,000 crore for railways, but this amount was cut by a fifth after railways' failed to spend money in time.

Rs 1.5 lakh crore will be funded by state-run LIC over the next five years towards railways' modernisation plan and it will save Rs 8,720 crore in 2015-16 on account of lower fuel and electricity costs.   
3) Freight business revival: Referring to the progress of Dedicated Freight Corridor Project, the Railway Minister said that almost all contracts for civil engineering works will be awarded by the end of this financial year. He said Rs 24,000 crore worth contracts were awarded since November 2014 as against Rs 13,000 crore contracts awarded during the last six years.   

He proposed to take up  North-South, East-West and East Coast freight corridors through innovative financing including PPP. He also said Railways is reviewing the tariff structure for its freight business and wants to expand the basket of commodities it transports to boost revenues.

4) Rupee bonds: Taking in innovative step, Suresh Prabhu proposed to launch rupee bonds in order to raise revenues from foreign investors.

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