October 9, 2024
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Stock Market

Railway stocks down by upto 35% from 52W high: Can they Bounce Back?

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Stock Market

Railway stocks down by upto 35% from 52W high: Can they Bounce Back?

Railways are the backbone of the country. It helps to move tonnes of freight across the country inland. The connectivity has aided companies in delivering goods in bulk. The government is looking to increase investments to improve the logistics cost and maintain its infrastructure.

Stocks Rallying

Railway stocks were not performing in earlier days as it was linked to government policies and regulations. Now interest has been revitalised in the sector due to the government infrastructure push especially to improve railways. This move has brought investors to companies related to railways like RVNL, Ircon International, IRFC, Railtel Corporation, Rites, Jupiter Wagons, Titagarh Railsystems, and others.

These stocks have given a multi-bagger return in the past 2 or 3 years. The investors have benefitted from IRFC which has given returns of around 502% in 5 years. RailTel and RVNL have gained over 236% and 1,750% in the past 5 years. Even Texmaco Rail, Ircon International, and Oriental Rail Infrastructure have increased by over 300% in the same period.

Meanwhile, RITES shares have risen by 110% in the past 5 years. Usually, Railway stocks often perform differently from other sectors because they are sensitive based on infrastructure investments and government regulations and policies.

Budget Allocation

In recent years, the railway allocation in the Budget has grown exponentially. From the 2022-23 budget, the allocation was Rs. 1,40,367 crore. It saw an increase of around 72% YoY increase to Rs. 2,41,267 crore in 2023-24.

In the recent budget 2024-25, the allocation was Rs. 2,62,200 crore (Rs. 2,52,200 crore allocation, Rs. 10,000 crore from extra budget resources) which is an increase of 8.67% YoY.

In this recent budget, the announcements were related to new trains such as Vande Metro, Vande Bharat, and Namo Bharat Trains. Even the flagship project on the Mumbai-Ahmedabad high-speed rail corridor is also included.

FM also announced that India will establish three major railway economic corridors: a mineral, energy, and cement corridor, a port connectivity corridor, and a high-traffic density corridor. These designated corridors will help companies to streamline their supply chain operations.

Recent Fall

After a huge rally due to increased allocation in 2023-24, the stocks further performed due to higher allocation in the current year’s budget. From the Interim Budget, most of the railway stocks performed. After the recent budget, the expected allocation was much higher than a year ago. The allocation was below the expectations of analysts.

This made a dent in railway stocks. Shares started declining and now RVNL has fallen by 21%, IRFC down 26%, Railtel down by 21%, Texmaco down by 30%, Ircon down by 32%, Titagrah down by 32%, Jupiter wagons down by 24% and others from budget day. These stocks were trading near and touched their all-time high. Ever since from budget, these stocks have been trading at a discount from 52W high.

According to some stock market experts believe that these PSU stocks have struggled to attract investors due to policy paralysis especially from the Lok Sabha elections in 2024 during the first quarter of FY25.

Additionally, the high base effect in Q1FY25 contributed to the weak results of these railway stocks. Despite these developments with new government formation, it is expected PSU companies might gain momentum, with recent cabinet decisions on new railway line projects holding examples. They noted that railway stocks are currently available at discounted prices.