More steam left in rail stocks; RVNL, Railtel rally over 20% in one week

Railway stocks have seen a significant upswing over the past week, indicating a renewed sense of optimism in the sector. Despite the recent run-up, some market participants are worried that railway stocks have entered the overbought zone while others see fundamental triggers for further upside.

Shares of Rail Vikas Nigam Ltd (RVNL), Titagarh Rail Systems, Jupiter Wagons, Texmaco Rail and Engineering, IRCTC, Railtel Corporation of India and RITES have surged 5-24 percent in the past one week.

Even as technical chartists believe many of these railway stocks are in the overbought zone, fundamental analysts are of the view that most were not moving since quite some time which is why the value was suppressed for a long time. Moreover, chatter in the market is about mergers in the sector which could lead to synergies such as cost reduction and efficiency for railway players.

Market participants have noted that money is shifting within the railway sector as investors continue to find significant value in the space.

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From April 1 to August 31 this year, the Indian Railways has seen the highest-ever capital expenditure utilisation of around 48 percent. During these first five months of the fiscal year until August 2023, the railways spent Rs 1,15,000 crore.

Moneycontrol recently reported that the Indian Railways is actively developing a Production-Linked Incentive (PLI) programme to stimulate domestic production of wheels, brakes, and transmission systems specifically designed for Linke Hofmann Busch (LHB) and Vande Bharat train sets. The expected quantum of the PLI scheme is likely to be in the range of Rs 800-1,200 crore and would be spread over three years.

Read | Indian Railways mulls PLI scheme to boost local manufacturing of wheels, brakes and transmission systems

Based on past analysis, expectations are that around Rs 200-300 crore each will be needed to boost manufacturing of wheels, axles and braking systems, and another Rs 200-300 crore will be needed to boost manufacturing of locomotives and track machines, an official told Moneycontrol.

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According to previous assessments, it is estimated that approximately Rs 200-300 crore will be required for the enhancement of wheel, axle, and braking system production, while another Rs 200-300 crore will be needed for the expansion of locomotive and track machine manufacturing, an official had told Moneycontrol.

The Indian Railways is getting a significant boost in capital expenditure, with Rs 2.4 lakh crore allocated for 2023-24. This marks a 65.6 percent increase over the previous year, with funds going towards various railway infrastructure projects, including tracks, wagons, trains, electrification, signalling, and station facilities, with a strong emphasis on safety.

Finance Minister Nirmala Sitharaman announced this historic allocation in her Budget speech on February 1, highlighting that it’s nine times higher than what was allocated in 2013.