Railway ‘Kavach’ Stocks to Protect Your Portfolio?

As cities in Odisha went about their daily routine on 2 June 2023, a sense of unease lingered in the air. The train collision near Balasore, a town located about 250 kilometers away, sent shockwaves through the nation. The tragedy claimed lives of over 250 innocent people and left around thousand others injured.

The incident has turned the spotlight onto an essential railway safety measure—the automatic train protection system known as "Kavach." The world came to know later on that the route where the tragic accident occurred was yet to be equipped with this lifesaving technology.

Let’s understand what this is all about…

The Indian Railways has developed its own automatic train protection system Kavach.

It serves as a vital safeguard against one of the primary factors contributing to train collisions: when a loco pilot fails to adhere to a signal (known as Signal Passed at Danger). By detecting such instances, the system promptly alerts the loco pilot, taking charge of the brakes and initiating an automatic halt if it detects another train on the same track within a specified distance.

This system was developed indigenously by the Research Design and Standards Organisation (RDSO) in association with three Indian vendors.

While there is a lot more to unpack about the Kavach statistics, we’ll only take a look at the scariest part unfortunately.

The Indian Railways has a total route length of around 68,043 kilometres.

Any guesses what % of this 68-thousand-kilometre rail route has been covered with the Kavach?

A measly 2%!

That’s right. Only 1,445 kilometres route has been deployed with the Kavach system.

That brings us to the other important aspect – companies that are making this Kavach system.

From the listed space, three companies are directly or indirectly involved in the development of Kavach – HBL Power, Kernex Microsystems, and KEC International.

And this is the right time to take a close look at these companies. In the investing world, it's not uncommon for major incidents to send shockwaves through the stock market. Whether it's a tragic train collision or a critical shortage like the oxygen crisis during the Covid-19 pandemic, such events can have a profound impact on related industries.

These incidents shape the trajectory of stocks and industries. While unfortunate events can bring about devastating consequences, they can also act as catalysts for change, driving increased focus, investments, and regulations within specific sectors.

The train collision serves as a poignant example of how incidents can prompt stock market rallies and revive underperforming industries.

The stock price of HBL Power Systems has been rising after the news, and the same is the case with Kernex Microsystems. Another company involved in this space – KEC International – has not really shown any progress on the share price front but it did receive a big order after the drastic incident.

KEC secured two significant orders totaling Rs 600 crore for its Train Collision Avoidance System (TCAS). The company’s chairman said that they don’t have many tenders or orders at the moment. But now, it seems the Modi government will emphasize more on the Kavach which could lead to more orders getting released. He added that there’s capacity to make systems in bulk if the orders are released. KEC has already partnered with Kernex to leverage on its expertise.

For now, at least, there’s no official news stating HBL Power Systems and Kernex Microsystems receiving any order. But these two are the prominent players in the transport-related equipment and services sector. They could emerge as prime beneficiaries overnight if the government decides to give the Kavach system the importance it’s giving to Vande Bharat trains.

Why we say this is because it’s pretty hard to make a breakthrough in this segment. And since these companies already possess the expertise, experience and know-how, they could contribute to the development and implementation of this crucial railway safety technology.

When accidents like this happen, the consequences can be deadly serious at the local level. It also puts the risks to the vast public out in the open. However, that is not to say there isn’t a cause for nationwide upset here. It seems the Indian government’s next big focus will be the implementation of Kavach across its vast railway network.

Recently, an accident was averted in West Bengal. The Delhi-Bhubaneswar Rajdhani Express had a narrow escape when it almost crashed into a tractor carrying barrels of diesel.

All this points that Kavach is needed much more now than ever.

We feel it would take a few simple rule changes to alleviate much of this risk.

Lots to think about here for the Indian government. Lots of opportunities for a few selected sectors. And lots of potential market opportunities for traders and investors.