Railway stocks zoomed in 2024 as investors hope to see a spurt in government funding into railway infrastructure in the upcoming 2024-25 Union Budget.
In the 2023-24 Union Budget, the rail ministry received a record Rs 2.4 lakh crore, a nearly nine-fold increased from the 2013 outlay. This boost, including a significant Rs 1.85 lakh crore for capital expenditure, led to advancements like the Vande Bharat trains, station redevelopment, and new tracks, contributing to a bull run in railway stocks.
The momentum is predicted to stay on in 2024, with expectations of increased allocation and continued investment in safety enhancements, asset replacement, and ambitious projects such as the bullet train, analysts said.
In 2022-23, the Indian Railways awarded significant tenders, but several projects face delays. The BharatNet rural broadband project has been stalled for nearly 12 years due to procedural issues and coordination challenges. Other delayed projects include the Hubli-Ankola-New Line, Delhi-Ghaziabad-Meerut Regional Rapid Transit System, and the Bengaluru-Chennai Expressway four-laning.
Expectations from budget
CareEdge Ratings anticipates a budgetary allocation of around Rs 3 lakh crore for the railways in the Union Budget 2024-25, reflecting a 25 percent increase from the previous year. The railways' ambitious plans include the indigenous production of 400 energy-efficient Vande Bharat trains, with 41 operational as of January 2024.
Expecting significant investment announcements, CareEdge Ratings looks for enhancements in first-mile-last-mile connectivity for dedicated freight corridors, warehousing, and container freight terminals to boost modal shift to railways. They emphasise the need for an independent regulator in railways to rationalise freight tariffs, encourage private participation, and ensure transparent dispute resolution, aligning with the National Logistics Policy and PM Gati Shakti policy. The announcement of a regulatory body and reforms in haulage rates is anticipated in the upcoming budget.
"As we are in election mode, the budget that will be announced on February 1 will just be an interim budget and one should not expect anything spectacular as the full budget will be in July when the next government comes in. However, investments in the New Vande Bharat trains, Railway Kawach i.e. safety tenders for train collisions, and recently announced India-Middle East-Europe economic corridor augur well for the railways in the coming years. Focus on infrastructure, fresh infusion of capital and diversification of business is something that investors will likely monitor," said Raj Vyas, vice President for research at Teji Mandi.
Stocks to watch
Rail Vikas Nigam (RVNL), Indian Railway Finance Corporation (IRFC), Ircon International, NBCC (India), RailTel Corporation of India and Texmaco Rail & Engineering were among the stocks in focus.
Shares of RVNL gained for the tenth straight session, IRFC, Ircon International jumped in nine out of 10 sessions, NBCC India rose for the second straight day, RailTel advanced in 13 out of 15 sessions, and Texmaco Rail gained in 11 out of 15 sessions.
With these higher allocations, the order book this year has surged and these firms are likely to get further orders.
Analysts anticipate railway firms to achieve a revenue CAGR of 17 percent from FY23 to FY26, driven by increased allocations. They see potential upside to revenue growth assumptions due to robust domestic demand and improvements in both private and public spending. Analysts emphasised that the railways must address safety and punctuality issues to enhance operational efficiency.
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