Railway stocks rally on hopes of increased budgetary allocation

Railway stocks like Rail Vikas Nigam (RVNL), Indian Railway Finance Corporation (IRFC), Ircon International, NBCC (India), RailTel Corporation of India, and Texmaco Rail & Engineering are in focus ahead of the Union Budget that will be presented on July 23.

Railway stocks like Rail Vikas Nigam (RVNL), Indian Railway Finance Corporation (IRFC), Ircon International, NBCC (India), RailTel Corporation of India, and Texmaco Rail & Engineering are in focus ahead of the Union Budget that will be presented on July 23.

Post the interim budget on February 1, these stocks have already gained between 11-112 percent. Rail Vikas Nigam is the top gainer with a 112% increase, followed by IRCON at 44% and RailTel at 37%. Texmaco Rail jumped 31% while IRFC advanced 28%, and NBCC is up 12%.

In the Interim Budget for FY25, Finance Minister Nirmala Sitharaman allocated Rs 2,52,200 crore to railways as gross budgetary support, plus an additional Rs 10,000 crore from extra-budgetary resources.

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The government also announced plans for dedicated tracks for coal and mineral transport, improved port connectivity, and measures to address congestion to enhance efficiency and capacity.

Meanwhile, CareEdge Ratings expects an increased budgetary allocation of 12-15 percent in the Union Budget. Reforms like the introduction of a hybrid annuity model for improving public-private participation in the railways segment besides asset monetisation efforts are some of the other expectations.

The railway industry has urged the central government to maintain capital expenditure in the upcoming budget, while former officials and experts have emphasised on the need for focus on safety.

Experts have also recommended prioritising energy, mineral, and cement corridors and increasing spending on technology advancements like rail-road connectivity, IoT, automation, blockchain, cloud computing, AI, and robotics to enhance logistics development.

They have further suggested that traction in track construction pace, thrust on high-speed trains, large investments in rolling stock and substantial completion of dedicated freight corridors augur well for the sector. Yet, lack of regulatory body and limited public private participation pose as sector challenges, they added.

Incidentally, conversion of rail bogies into Vande Bharat standards is also likely to augment Vande Bharat Train Capacity by 50-60 x in the medium term. Focus on economic rail corridors to achieve first-mile-last-mile connectivity and station redevelopment shall be a continual theme, as per CareEdge.

Raj Vyas, Vice President - Research, Teji Mandi said expectations are high for an allocation increase to between Rs 2.8-2.95 lakh crore. There's anticipation of a Kavach Tender for 3,000km this year, and the focus will be on transforming the passenger rail system, aiming for the introduction of approximately 250 Amrit Bharat Trains over the next 5-7 years, he says.

Industry participants have also urged the central government to introduce a production-linked incentive (PLI) scheme to boost the production of railway ancillary parts in India.

Ajay Bagga, an independent analyst, recently highlighted key expectations for the railways sector in the Union Budget 2024: maintaining high capex outlay, allocating funds for safety through the rapid rollout of the Kavach anti-collision system, launching new Vande Bharat and Amrit Bharat trains, increasing freight wagons and passenger compartments, and significantly funding safer and faster tracks in congested networks.

A recent study showed that India has 800 crore rail trips annually, which is projected to rise to 1000 crore by 2030.

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