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Business, Equities, Markets, Result Updates - January 17, 2025

Expectation of allocations for Railway Sector to about Rs 3 Lakh Crore

Expectation of allocations for Railway Sector to about Rs 3 Lakh Crore

In the Union Budget 2025, there are currently high expectations in the market about a positive announcement for the railway sector. Despite this, many railway stocks are performing low compared to their high record trend in the year 2024. The reason for this is muted market sentiments. There are high expectations about the railway sector securing allocation of around Rs. 3 lakh in upcoming Union Budget 2025-2026.

Expectations about Allocation of Funds
In the Union Budget 2024, the funds allocated for the railway sector was slightly more than Rs. 2.62 lakh crore. Till the date of 5th January, the funds utilised accounts to Rs. 2 lakh crore. Many analysts estimate that the coming budget will record a rise in 15 to 20 percent of allocation of funds.

Partner and Vice President of Complete Circle Capital, Aditya Kondawar points out some likely projects such as improvements in KAVACH safety system, adoption of artificial intelligence (AI) for functions such as ticketing and also to raise funds in the Bullet Train project. He further points out allocation for projects such as Gati Shakti Multi-Modal Cargo Terminals (GCT) in order to encourage private investments in cargo infrastructure and also for the progress of the Amrit Bharat Station Redevelopment Scheme.

Increase in only allocation of funds in the railway sector is not enough. The utilisation of these funds is a very important step to achieve planned goals and development.

The equity research analyst at Choice Broking firm, Mandar Bhojane stated that the amount of capital expenditure in the railway sector has constantly increased in the duration of the previous five years. However, it has failed to achieve project timelines on time. He also believes that companies working in the railway sector will receive stimulus from the Indian government on the basis of schemes such as Public-Private Partnership (PPP) and Make in India.

Government Plans
The Indian government seemingly has plans to acquire 90 more Vande Bharat trains. At present, 136 Vande Bharat trains are functioning in India. It also has plans to use funds to build infrastructure for high-speed rail testing. The test track infrastructure is being constructed in Rajasthan which accounts to funds of Rs. 820 crore.

To increase Indian railway’s market share in cargo, it is expected to announce purchase orders of big wagons in the range of Rs 20,000 to Rs 25,000 crore. The current market share of the railway sector in cargo is about 27 percent. Also, the funds are projected to be used for the purpose of complete electrification of main railway lines as well as for enhancement of safety with improvement in level crossings, bridges and signalling.

Performance of Railway Stock
Many railway stocks are representing a weak trend. The railway stocks such as Jupiter Wagon and RailTel Corporation fell to 44 percent and 42 percent, respectively. Stock of Texmaco Rail and Container Corporation of India declined to 42 percent and 38 percent, respectively. While railway stocks such as IRCTC, IRCON International, RVNL declined to 35 percent, 48 percent, and 45 percent, respectively. Also, IRFC which was at its 52-week high fell to 48 percent.

Smallcase Manager and Co-Founder of KamayaKya, Nitya Shah stated that the Indian railway stocks were placed at very high valuation in recent times. Many railway stocks were considered multi-baggers in the period of the previous three years.

The railway stocks such as IRFC, IRCON International, Titagarh Wagons, and RVNL have given strong annualised returns in between 25 to 50 percent. The high valuations show positive expectations about the future growth. Despite this, there are rising concerns about whether these high valuations can be maintained or not in case of no corresponding increase in earnings of the firms. In present times, investors have to wait for better fair prices in this situation of high valuations of the stocks.

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Business, Equities, Markets - January 14, 2025

Railway Sector's Budget Allocation and Stock Performance: Insights for Investors

Railway Sector’s Budget Allocation and Stock Performance: Insights for Investors

Until the year 2016, the Indian Railway ministry published the budget separately every year. During this period, there exist only fewer companies in the railway sector leading to limited investment opportunities for investors. After this, the government of India decided to merge the railway budget with the Union Budget. It led to significant transformation of investment opportunities available in the sector for investors due to increase in transparency, accountability and also number of investment opportunities.

Significance of Railway Budget
Since the listing of Public sector undertakings (PSUs) from the railway sector in the year 2018, it has persistently surpassed benchmark indices. Also, the Indian Railway has a strong influence on the daily life and economic activities of the nation.

In the current budget presentation, the ministry of finance has given the railway sector only a short mention. Despite this, it has a great significance. The investors and analysts are keen to know the capital allocation for the railway sector by the Indian finance ministry.

The capital allocation for each fiscal year from 2018 to 2025 has recorded a significant upward trend. It has risen to over six times which accounts for a surge from Rs. 43,230 crore to a significant amount of Rs. 265,000 crore. It’s not just the allocation which attracts investors but also the extensive use of these funds.

According to the outlay report of Indian Railways published on 5th January, 2025, the sector has effectively used 76 percent of the allocated funds by the month of December, 2024. This effective utlisiation of funds accounts to Rs.1,92,446 crore out of the total allocation of funds of Rs. 2,65,200 crore. While the utilization of funds for the safety initiatives accounts to around 82 percent of the total funds allocated for safety-related works.

This considerable amount of allocation and also effective use of the funds hint at an active as well as successful year. It has a significant record of giving good returns to investors considering the remarkable performance of railway stocks to surpass benchmark indices since post-2018 listing.

Railways stocks’ historical outperformance
The track record of PSUs of the railway sector to perform well compared to the market indices is significant, particularly in the pre-budget announcement period. This trend is usually recorded when the market is in a bullish or stable condition, prior to the budget presentation. In almost every case till now, the public sector companies in the railway sector have followed this trend with the exception of IRCTC stocks.

Recent Performance of Railway Stocks
In recent times, the stock market is facing a selloff situation, where many investors are trying to sell their stocks leading to a considerable fall in the stock prices. The budget date is coming closer, investors’ expectations are increasing towards the government’s plan to strengthen economic growth. The crucial need of the government is to give a boost to economic growth. The Indian government also has to focus on increasing infrastructure expenditure in sectors such as railways.

In case of stabilisation of market conditions in the next couple of weeks, it can possibly lead to repetition of the historical trend of outperformance of railway stocks.

Currently, railway stocks recorded a sharp decline compared to their high record in 2024. The reason for this is prevailing low market sentiments. The railway stocks such as RVNL, RailTel, IRFC, IRCTC, and other railway stocks observed a decline of around 48 percent from their previous highs in the year 2024.

The head of Research at Motilal Oswal Financial Services, Siddhartha Khemka stated that the reason for the performance of rail stocks is declining due to comparatively weak government spending in the current fiscal year. It has led to railway contracts to be delayed or on hold. He further stated the market is anticipating that government spending will rise in the second half of the fiscal year 2025. This will help the railway contracts to revive.

He also states that the present price levels can act as an opportunity for investors to invest in rail stocks but he warns that the market expectation should be in line with actual government activity. As alignment of both market expectation and government actions with each other will make sure that the future growth will remain strong.

The head of research of Sharekhan, Sanjeev Hota also stated that the railway sector has strengthening growth potential as well as visibility of the business is good, considering the government’s focus on infrastructural development.

The analysts stated that there is a requirement of decline in rail stocks to mitigate the adverse effect of the rise of the past two years’ inflated price level. Hota further suggests that a very careful approach needs to be followed in terms of investment in rail stocks. He states that the condition of trade-off in risk and reward is not good even when the price of rail stocks is in correction. He also advocates that the investment in rail stocks should not be increased and also proposes to wait for more decline in price levels.

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