The shares of companies associated with Indian Railways' Kavach systems have seen significant downturn recently, despite initial boost. Analysts have pointed out why these stocks fail to hold on to the momentum, and what lies ahead.
CG Power, HBL Engineering, Kernex Microsystems, Quadrant Future Tek, and Railtel Corporation Of India are seen as the key listed companies associated with India's Automatic Train Protection (ATP) system.
How are the Kavach stocks performing?
CG Power and Industrial Solutions shares closed in the red with marginal losses on November 25. Earlier, during the day, the stock fell nearly 1 percent to hit an intraday low of Rs 677.8 apiece, extending losses for the sixth session.
HBL Engineering shares were also in the red, extending losses for the seventh session, while Quadrant Future Tek shares dropped more than 1 percent. Railtel Corporation of India and Kernex Microsystems shares bucked the trend to trade in the green. However, RailTel shares have fallen nearly 8 percent in the past month, while Kernex Microsystems shares fell more than 8 percent in the past five days.
The stocks have fallen up to 22 percent from their one-month high.
What is the Kavach system?
Kavach is an indigenously developed Automatic Train Protection (ATP) system aimed to avert major train accidents. "Kavach aids the Loco Pilot in running of train within specified speed limits by automatic application of brakes in case Loco Pilot fails to do so and also helps the trains to run safely during inclement weather," reads a press release by the Ministry of Railways.
The first field trials on the passenger trains were started in February 2016, and Kavach was adopted as National ATP system in July 2020. The system particularly came under the limelight after three trains collided in Balasore district of Odisha in 2023, causing the death of nearly 300 passengers.
The tragic accident showed the need to higher safety to avoid any such incident in the future, bringing calls for faster implementation of the Kavach system.
Why are the Kavach stocks falling?
These Kavach-linked stocks had earlier seen sharp surge. However, they have seen significant downturn recently. Analysts have listed out reasons why investor sentiment seems to be shifting from these stocks.
Siddharth Maurya, Founder & Managing Director at Vibhavangal Anukulakara, said the recent correction in Kavach-linked railway stocks is less about the weakening of the safety theme and more about markets shifting focus from order announcements to execution realities. "Companies like HBL Engineering, RailTel, and Kernex have secured sizeable, multi-year Kavach orders, reaffirming that the safety-automation cycle remains fully intact. But investors are now watching delivery timelines, margin stability, and cash-flow discipline far more closely," he said.
Ravi Singh, Chief Research Officer from Master Capital Services, attributed the recent downturn in the stocks to profit booking as many of them are "substantially overvalued" following the previous rally. He also said that the price corrections may have also been driven by disappointment due to perceived delays or results that didn't meet expectations.
"Disruption to the earnings momentum, excessive valuations, and inconsistent disappointment with respect to order & project execution schedules has caused recent corrections (downturns)," he explained.
What lies ahead for Kavach-linked stocks?
The next phase of value creation will not come from headline contracts but from scalable deployment, integration with signaling networks, and long-term service revenues, said Maurya. "The structural story is strong, but this is entering an execution-heavy phase. For serious investors, this remains a durable tech-infra opportunity — provided they have patience and a long-term lens," he added.
Singh meanwhile said that corrections provide an opportunity for long-term investors to evaluate risk or reward on a different basis, providing focus on balance sheet strength, order backlog quality, and what management has to say about profits and execution through 2026.
"The government's intent to roll out a nationwide railway safety system combined with a large potential market creates a structural story for railway safety stock, attractive due to medium-to-long-term growth opportunities, despite some short-term challenges," the analyst said.
The next leg of value creation for these stocks will depend on converting backlog into margin‑accretive revenue, avoiding project delays, and managing working‑capital demands, said Harshal Dasani, Business Head at INVasset PMS. "The market is giving a mid‑cap multiple that reflects both opportunity and risk—meaning a successful execution will likely see re‑rating, but slip‑ups could trigger sharp resets," he added.
"Given that many of these stocks have already fallen materially from prior highs, today presents a selective opportunity: pick those with clean balance‑sheets, proven systems delivery, and won‑but‑yet‑executed orders. Investors should treat the current dip not as a short‑term trade but as a patience‑calibrated play on India's rail‑modernisation momentum," he explained, adding that the key for investors is now execution rather than promise, as the structural case remains strong.
"In short, the Kavach story is intact—but the 'when' and 'how fast' have become as important as the 'what'. Select players with cleared R & D approval, order backlog visibility and strong balance‑sheets stand to benefit; others may languish in the risk‑pool," Dasani said.
HBL Engineering technical view:
HBL Engineering has slipped into a short-term corrective phase but is currently sitting right on a major support cluster around Rs 870–885, which includes the previous breakout zone, rising trendline support, and the confluence of the 50-day and 100-day EMAs. This makes the current level critical for trend preservation, said Drumil Vithlani, Technical Analyst at Bonanza.
"Overall view remains constructively cautious, with bulls needing to defend the current support zone to avoid deeper correction," the analyst added.
Harshal Dasani said that the company's recent order wins underline the long‑term runway of the KAVACH programme. The company secured a Rs 132.95 crore contract for deployment across a 446‑km section from the South Central Railway, as well as a Rs 30.67 crore upgrade project for the Mudkhed–Manmad section. This raised its order book in the railway safety vertical to well above Rs 4,000 crore, offering two‑year visibility at current run‑rates, the analyst said.
Kernex Microsystems technical view:
Kernex is currently taking support exactly at the crucial Rs 1,140–1,155 demand zone, which aligns with the rising trendline and the cluster of short-term moving averages, making this a key area for buyers to defend, Vithlani said.
"As long as the price holds above Rs 1,140, the broader structure remains constructive with potential for a bounce back toward Rs 1,250 and Rs 1,310. A breakdown below Rs 1,140, however, would weaken the trend and open downside toward Rs 1,095. Overall view remains cautiously positive with a 'buy on dips near support' bias while keeping a strict stop below the demand area," he added.
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