Rail Reforms and enthusiastic market
With every pep talk driving rail stocks higher and higher every
now and then, events like Rail Budget, new railway minister or even investors meeting
called by ministries are just proving to be catalyst for this segment. Market
had been observing these rallies ever since National General Election
portrayed clear majority for NDA government and rest is history for all of us.
New government and every pep talk are reasons to celebrate but
there is caveat when valuing these stocks. For instance wagon manufacturing
companies which is been observed to follow patterns of government policies had
seen its worst years in last couple of years. Most of them had been booking
losses due to fewer volumes of business and culprit maybe policy paralysis in
last two –three years of previous government.
Fundamentals are scattered for this segment and comparing companies
would be injustice in some way or other. It is also observed that sales, profits
and margin are very cyclical in nature and it’s not just years but they change
on QoQ as well.
Hence one has to look
into unconventional way of looking into these stocks. We will discuss on
parameters like how much book value these companies are making on sequential
basis or how much money an investor is putting for every rupee of book value.
When looked into P/BV of these segments almost all companies
are trading at 2-2.5X of normalized P/BV .Normalized P/BV are based on previous 2-3 years of book
values when the segment was doing good. This might be worrisome and investors
have to cautious while putting money into these stocks.
To justify current prices each pep talk or
investment allocations had to be translated into numbers at faster pace on financial
statements of these companies. Most of them are still having business with
previous order and new orders with reforms talks are still waiting to be
released and to be confirmed with market.
With such frenzy and crazy atmosphere of market, currently
investors should look for signs of execution of these reforms and participation
of these companies for the implementation. In coming few days or weeks there might
be new information or news coming in for this segment and investor should be
advised to invest with cautions in this stocks.
News and data reference:
Disclaimer: This is general market discussion based on statistics
and news available in public domain. Investments are subject to market risk and
one must consult his financial advisor before investing. The author is not
recommending any sector or stock to invest in or not proving any trading or
investment ideas but just sharing his/her thought on market. The author of this
article will not be liable for any loss incurred by any individual or institute
on any trading/investment activities taken based on thoughts or statistics shared here.
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