Expectations are high for significant announcements for the railway sector during the upcoming Union Budget on February 1. However, while railway stocks are in focus as anticipation builds ahead of the budget, most of the stocks in the segment have witnessed a sharp decline from their record highs in 2024, reflecting subdued market sentiment following last year’s extraordinary market rally.
In the previous Union Budget 2024-25, presented on July 23, the railway ministry received a record allocation of a little over Rs 2.62 lakh crore for capital expenditure. As of January 5, around Rs 2 lakh crore of the budgetary allocation had been utilised. For the upcoming budget, analysts predict a 15–20 percent increase, potentially raising the allocation to Rs 3 lakh crore.
Aditya Kondawar, Partner and Vice President at Complete Circle Capital, highlights potential initiatives such as increased funding for the Bullet Train project, enhancements to the KAVACH safety system, and the integration of artificial intelligence for operations like ticketing. He also emphasised the acceleration of the Amrit Bharat Station Redevelopment Scheme and the development of Gati Shakti Multi-Modal Cargo Terminals (GCT) to attract private sector investments in cargo infrastructure.
Experts, however, also add that fund allocation alone is insufficient. Effective utilisation will be critical to realising these ambitions. Efficient execution could significantly benefit railway-related companies and contribute to robust growth in the sector, they said.
Mandar Bhojane, Equity Research Analyst at Choice Broking, said that while railway capital outlay has consistently increased over the past five years, execution has lagged in meeting project timelines. He expects companies in the railway ecosystem to gain from government incentives under the Make in India initiative and Public-Private Partnership (PPP) models.
The government is reportedly planning the procurement of 90 additional Vande Bharat trains, alongside funding for high-speed rail testing infrastructure such as a Rs 820 crore dedicated test track in Rajasthan.
A large wagon order worth Rs 20,000 -- Rs 25,000 crore is anticipated to support freight transportation, aiming to boost railways’ current 27 percent market share in cargo. Furthermore, funds are likely to focus on achieving 100 percent electrification of broad-gauge lines and improving safety with upgrades in signalling, level crossings, and bridges.
Incidentally, Indian Railways currently operates 136 Vande Bharat trains nationwide, with additional announcements expected for expanding Vande Bharat services and introducing Vande Metro trains tailored for suburban travel.
Ajay Garg, Director & CEO, SMC Global Securities said the rise in budgetary allocation will help accelerate ongoing modernization efforts, enhancing track infrastructure, building new tracks, renovating old lines, and upgrading safety systems.
Railway stocks currently on slow track
Prominent railway stocks have seen significant corrections: Indian Railway Finance Corporation (IRFC) has dropped over 48 percent from its 52-week high, Rail Vikas Nigam Ltd (RVNL) declined 45 percent, IRCTC fell 35 percent, Container Corporation of India dipped 38 percent, IRCON International lost 48 percent, RailTel Corporation slipped 42 percent, Texmaco Rail dropped 42 percent, and Jupiter Wagons is down 44 percent.
Nitya Shah, Smallcase Manager and Co-Founder of KamayaKya, says that the railway sector has recently experienced expensive valuations, with several stocks emerging as multi-baggers over the last three years.
Stocks like RVNL, IRCON International, IRFC, and Titagarh Wagons have delivered robust annualised returns ranging from 25 percent to over 50 percent.
While these valuations signify optimism about future growth, concerns remain about whether such levels can be sustained without a proportional rise in earnings. Shah added that current valuations appear elevated, and more reasonable pricing is required before making fresh investments.
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