Upsurge in Indian Shipping Stocks: A Possible Improvement to the Budget
Interestingly, in a flash, on July 11 2024 the Indian stock market saw a steep rise in the shares of shipping companies. In terms of turnover, some of the leading organisations like SCI, MDL, CSL, and GRSE realised a maximum pecuniary quantum of around 20% in the share prices. This rally was on account of expectations of a possible government announcement on support for the shipping industry in the forthcoming Union Budget on July 23, 2024.
Proposed Maritime Development Fund
This stock market boom is centred on the so-called laid out plan to set up a Maritime Development Fund to be funded between ₹15,000 crore to ₹20,000 crore. This fund is a long-term, low-interest fund to meet the indigenous requirements of the ship builders existing in India.
It was estimated that the Maritime Development Fund (MDF) can be a portfolio of financing products such as debt, equity and viability gap funding instruments to finance the development of the maritime sector. It is considered as a major measure to strengthen the indigenisation of the country’s ship-building industry and to also cut the consumption of leasing of vessels from overseas, which costs India approximately $75 billion annually.
Harit Nauka Scheme
Aside from the Maritime Development Fund, there are other upcoming schemes also anticipated by the government; one such scheme is the ‘Harit Nauka’ which is also known as ‘Green Ship’ where the specific incentives which have been included to ensure that the ships are run under the hydrogen-based fuel. This could be to the benefit of other domestic shipbuilding industries such as the Cochin Shipyard that has already developed a hydrogen fueled ship in a pilot project.
The Harit Nauka scheme is also viewed as forming part of the Indian government’s overall renewable energy and environmental protection strategy.
Impact on Shipping Companies
The possible increase in MDF allocation as a result of the proposed amendment is likely to be advantageous to a number of strata of the Indian shipping industry. Below is the analysis of the expected impact:
Shipping Companies
These companies included the Shipping Corporation of India (SCI) for instance where the share price for its stocks shot up to the upper limit by a 20 % Enhancement. This shows a healthy investor sentiment towards increased benefits with a larger corpus of an MDF. Enhanced availability of long-term, low-cost funding sources could enable the shipping companies to increase their fleets, optimise their organisational scenarios and enhance competitiveness in the global market.
Shipbuilding Companies
The positive sentiment was not confined to the refinery and oil marketing companies; this even included shipbuilding companies such as Mazagon Dock Shipbuilders, Cochin Shipyards, and Garden Reach Shipbuilders. The stocks of these companies experienced a boost, with an increase of up to 5%. Thus, the enhanced MDF allocation can make a positive impact on the shipbuilding activities within the territory of India as a result of the growing demand.
Some of the notable gainers include:
- Shipping Corporation of India (SCI): Shares hit the 20% upper circuit limit, reaching ₹330 per share.
- Mazagon Dock Shipbuilders Ltd.: The stock surged to a new high of ₹5,516, gaining 6.5%
- Essar Shipping: Experienced a 10% rise, with shares hitting the 52 week high at ₹71.54
- Great Eastern Shipping: Traded with gains of up to 15%.
- Great Eastern Shipping Company: Shares increased over 13%, reaching a 52-week high of ₹1,542.80
- Cochin Shipyard: Saw a 5% increase in share price
Focus on Green Shipping: The Harit Pathma Scheme
In addition to the potential MDF allocation, media reports also suggest that the Union Budget might unveil the Harit Pathma scheme. This initiative aims to promote the adoption of environment-friendly technologies in the Indian shipping sector. The scheme might offer incentives for ships powered by alternative fuels like hydrogen, aligning with India’s commitment to sustainable maritime development.
Government’s Vision for the Shipping Industry
The Indian government has recognized the strategic importance of the shipping industry for the nation’s economic growth.The “Sagarmala” program, launched in 2016, is a key initiative aimed at transforming India into a global maritime hub.The program focuses on developing port infrastructure, improving logistics efficiency, and promoting coastal shipping.
The potential increase in MDF allocation and the Harit Pathma scheme can be seen as extensions of the government’s vision for the shipping sector. By providing financial support and promoting green technologies, the government aims to:
- Enhance India’s Maritime Footprint: A robust domestic shipping industry can significantly contribute to reducing dependence on foreign carriers and strengthen India’s position in global maritime trade.
- Boost Trade and Commerce: Efficient and cost-effective shipping services are essential for facilitating domestic and international trade, thereby promoting economic growth.
- Create Job Opportunities: A thriving shipping industry can generate significant employment opportunities in various segments, including shipbuilding, ship repair, and logistics.
- Promote Sustainable Shipping: The Harit Pathma scheme underscores the government’s commitment to environmental sustainability in the maritime sector. By encouraging the adoption of clean technologies, India can contribute to reducing greenhouse gas emissions from shipping activities.
Viewpoint
The surge in shipping and shipbuilding stocks reflects the market’s anticipation of government support for the maritime sector in the upcoming Union Budget. The proposed Maritime Development Fund and the Harit Nauka scheme are expected to provide a much-needed boost to the industry, enhancing India’s self-reliance in ship-building and promoting eco-friendly practices. Additionally, the focus on green technologies through the Harit Pathma scheme can position India as a leader in sustainable maritime practices. As the nation eagerly awaits the budget announcements, the shipping and shipbuilding sectors remain in the spotlight, with the potential to emerge as key drivers of India’s economic growth.
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