Railway stocks back on track after a year of pain - but the ride looks bumpy

Valuations are still tricky and analysts remain cautious about how durable this rebound really is

After nearly a year of languishing in the red, railway stocks have suddenly found a new lease of life. Over the past week, shares of RVNL, Titagarh Rail, Jupiter Wagons, and other rail counters have staged a sharp rally as investors latched on to the government’s capex push and a spate of fresh order wins. Yet, beneath the surface, valuations are still tricky and analysts remain cautious about how durable this rebound really is.

Over the past week, shares of Titagarh Rail, Ircon International, Texmaco Rail, RailTel, RVNL, Jupiter Wagons, and IRFC surged between 4 percent and 13 percent. These gains mark a sharp turnaround after a bruising one-year stretch, when the same names were down anywhere between 16 and 38 percent.

The rebound has partly been supported by a reset in valuations, which have cooled after last year’s relentless slide. Data showed that Texmaco Rail now trades at 17 times (x) forward earnings versus its five-year average of 23x, while Titagarh Rail is at 34x against its long-term average of 42x. RailTel, at 33x, is still higher than its historical average of 23x, and RVNL remains the clear outlier at 48x compared with a five-year average of just 18x.

Capex, new orders keep the wheels turning

So, what really put railway stocks back on the tracks? Market participants point to the government’s sustained capital expenditure thrust, combined with visible order flows for players. Between April and July 2025, the Railway Board’s spending stood at Rs 79,152 crore - the highest among large CPSEs and government agencies. For FY26, the Centre has budgeted Rs 2.6 lakh crore of railway capital expenditure, broadly in line with FY25’s revised estimates, underlining the sustained policy commitment.

At the company level, fresh orders have also sparked interest. Texmaco Rail secured an order worth Rs 129 crore from RVNL for traction overhead equipment work in Nagpur division; Jupiter Wagons won a Rs 113 crore contract to supply 9,000 axles for LHB bogies; and RailTel bagged a Rs 210 crore order under the Bihar Education Project. These tangible wins have reassured investors that the government’s capex push is translating into opportunities on the ground.

Does the railway steam lack direction?

Despite the surge, brokerages and market experts are far from convinced that the railway rally is built on solid ground.

Aishvarya Dadheech, founder and CIO of Fident Asset Management, cautioned that the recent bounce is little more than a short-lived spurt. “What we’ve seen over the past week is temporary. The big rally of 2021–23 has already fizzled out, and valuations are still expensive compared to better opportunities elsewhere. Defence, in my view, offers a stronger narrative than railways. The capex story alone won’t deliver meaningful alpha — I would happily avoid rail as a preferred play within the capital goods theme,” he said.

Independent market expert Ambareesh Baliga struck a similar note, pointing out that order inflows have never really been the sector’s problem. “In the short to medium term, valuations look stretched. The real issue is execution. Over the longer horizon, if companies can deliver consistently on the large order books, they could again become attractive. For now, they look fully priced in,” he noted.

Brokerage consensus too supports this caution. While Titagarh Rail now has 10 "buy" calls compared to 7 a year ago, most other stocks have very few or no buy recommendations. RailTel, IRFC, and RVNL, for instance, are dominated by “hold” or “sell” calls. This underlines the gap between recent market enthusiasm and analyst conviction.

Adding to the skepticism is the weak showing in Q1 FY26, which laid bare the uneven fundamentals across the pack. RVNL’s profit slumped 40 percent year-on-year with EBITDA margins collapsing to just 1.4 percent. Ircon’s revenue dropped nearly 22 percent, while RITES managed only flat revenue growth. RailTel and IRFC did deliver double-digit profit gains, but overall, the quarter highlighted execution challenges, cost pressures, and the lack of a broad-based earnings revival.

Railway stocks may have gathered momentum after a long spell of underperformance, but the sector’s rally looks more like a sentiment-driven detour than a long-term rerating.

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