Rail stocks may chug along until Budget
Book profit selectively, advise analysts
The dream run in railway stocks may soon run out of steam, caution analysts. The rally, which has lasted nearly a year, may meet time-wise correction after the Union Budget announcements as investors begin scalping profits.
“There is going to be a build-up in expectations for the sector from the Union Budget, which is still two-odd months away. We expect the upmove to sustain with intermittent corrections until the time the Budget is announced. Some buying on every dip will likely take place and investors can book profits until then, if not already,” said Deepak Jasani, head of retail research, HDFC Securities, who prefers Rail Vikas Nigam (RVNL) and Ircon International.
He added that the sector lacks institutional investor holding, which is typically needed to maintain higher price levels. Thus, time correction after Budget 2023-24 cannot be ruled out.
On the bourses, companies such as RVNL, Texmaco Rail & Engineering, Rail India Technical and Economic Service, Indian Railway Finance Corporation, Titagarh Wagons, Ircon International, and Railtel Corporation of India have rallied as much as 123 per cent over the last year, driven by reasonable valuations, higher dividends, and the government’s increasing capital expenditure (capex) push in recent years.
“The run-up in the sector came in the wake of attractive valuations, with most stocks trading below price-toearnings multiples of 10 with firm dividend yields of 3-4 per cent. After a strong upturn in defence stocks, sector rotation to the railway has taken place on the back of government spending,” said Apurva Sheth, head of market perspectives, Samco Securities.
The Indian Railways led the central government’s capex announcements in 2022-23, accounting for 38 per cent of total projects in value terms.
This was similar to 2019-20, when the national transporter had accounted for 43 per cent of the Centre’s capex outlay, said analysts at Nirmal Bang in a recent note.
In the upcoming Budget, the Railways has reportedly sought gross budgetary support of ~1.5-1.8 trillion over ~1.37 trillion earmarked during Budget 2022-23. The allocation could be the highest ever, with the likely announcement of around 300-400 new Vande Bharat trains, according to reports.
A part of the said allocation could also be used towards laying new lines, given the Railways’ ambitious plan to lay about 100,000 kilometres of new track over the next 20-25 years.
These plans will generate significant orders for railway suppliers and engineering, procurement, and construction companies, said analysts.
Sheth said that the charm of railway public sector undertaking (PSU0 stocks is slowly fading, and these could tumble from here on.
“A correction is bound to follow after such a sharp run in PSU railway stocks. These could see consolidation in the near term. However, private sector stocks such as Titagarh Wagons and Texmaco Rail are seeing fresh breakouts on the charts. These could lead the sectoral upmove as PSU stocks cool off,” he added.