Railway stocks fall after budget announcement

In the previous budget, the allocation for railways was Rs 2.4 lakh crore, which was an all-time high

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Railway stocks fell on February 1 after the Finance Minister Nirmala Sitharaman  announced an increase in allocation for the sector. The stocks were trading higher in January amid expectations of increase in capital allocation for railway and infra sectors.

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Rail Vikas Nigam (RVNL) fell 1.24 percent, Indian Railway Finance Corporation (IRFC), IRCON International fell 1.5 percent, RailTel Corporation of India  fell 2.6 percent and Texmaco Rail & Engineering fell 1.2 percent. IRFC stocks were trading flat.

Sharing the interim budget, Sitharaman  had announced plans to increase 40,000 normal bogies to Vande Bharat standards and to expand metro rail and Namo Bharat to more cities. Additionally, three major economic railway corridor programmes will be implemented – energy, mineral and cement corridors, port connectivity corridors, and high traffic density corridors.

In the FY24 (February 2023) budget, finance minister allocated Rs 2.4 lakh crore for railways, which was an all-time high.

The previous budget had allocated around Rs 10 lakh crore for the total capital expenditure, a 33 percent increase from the previous year. The industry anticipates heightened government emphasis on safety and timely infrastructure upgrades in the country.

At the recently concluded Vibrant Gujarat Global Summit, Prime Minister Narendra Modi highlighted his vision for the growing infrastructure sector, expressing the government’s goal to attract significant investments. These remarks had suggested the possibility of policies and incentives in the Interim Budget 2024 to foster substantial growth in the infrastructure space.

Stock rally

Railway stocks rallied significantly over the past one year. Stock such as Ircon International, Indian Railway Finance Corporation (IRFC) and Rail Vikas Nigam surged by 300 percent, 400 percent and a whopping 936 percent respectively over this period.

That said, IRFC has a low float with the government holding over 86 percent stake in the company. Therefore, any move on either side of the stock can result in an extreme share price reaction, warranting caution.

Largely the rally in railway stocks was driven by the government’s capex push and Make in Indian campaign, both of which are positives for this sector.

Recently in an interview with CNBC-TV18 at the World Economic Forum 2024 in Davos, Railway Minister Ashwini Vaishnaw said progress in expansion and modernisation of the railways is huge.

“Last year we added 5,200 km of new tracks. That’s like adding the entire Swiss network in one year. We are now aiming at a pace of 15 km of tracks a day,” he said, adding that out of the Rs 2.4-lakh-crore capex plan, 77 percent has been completed as of date.

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