Railway Stocks Surge in Anticipation of Budget Boost: IRFC, RVNL, IRCTC on the Rise

Optimistic Outlook: Prabhudas Lilladher Predicts Significant Railways Capex Surge for Modernization and Vande Bharat Trains

The recent surge in the stock prices of Indian Railway Finance Corp Ltd (IRFC), Rail Vikas Nigam Ltd (RVNL), IRCTC, Jupiter Wagons Ltd, and Titagarh Rail Systems is attributed to positive market sentiments and anticipation of increased capital expenditure (capex) in the railway sector. Over the last month, IRFC shares have risen by 83%, RVNL by 84%, and IRCTC by 24%. Jupiter Wagons Ltd and Titagarh Rail Systems have also experienced gains of 31% and 14%, respectively.

Investors are optimistic about the railway sector’s prospects, expecting a boost in capex, especially focusing on railway modernization and the expansion of Vande Bharat trains.

The data reveals a robust 31% year-on-year (YoY) growth in capital expenditure for the period of April to November in the fiscal year 2024. During this timeframe, the capital expenditure has achieved 59% of the Budget Estimate (BE), surpassing the last 10-year average of 58.5%. Notably, the railways, with 71% of the BE, has emerged as a leading ministry in terms of capital expenditure.

PhillipCapital highlights the strong performance of the railways, contributing significantly to the overall capital expenditure growth. Meanwhile, Elara Capital emphasizes the government’s prioritization of capital spending, particularly in key sectors such as railways, roads, and defense. Although the focus is expected to continue, Elara Capital anticipates a moderate pace of growth.

Looking ahead, Elara Capital projects a 20% increase in capital expenditure for the fiscal year 2025, building on the 30.5% growth estimated for FY24. This growth rate, however, falls short of the budgeted target of 37.4%. Additionally, there is a possibility of a reduction in the budgeted allocation for interest-free 50-year loans to states from the Centre by Rs 30,000 crore. Elara Capital suggests that a significant portion, around 60%, of the overall central government’s capital expenditure is likely to be allocated to roads, railways, and defense.

Kotak Institutional Equities suggests that maintaining the quality of capital expenditure (capex), particularly in sectors like roads and railways, can be achieved by curtailing certain expenses such as recapitalization.

Vivek Lohia, the Managing Director at Jupiter Wagons, outlines his expectations for the budget, emphasizing the importance of decongestion measures and strategic planning. He advocates for continuous infrastructural improvement in the National Rail Network, highlighting the need to uphold the 3000 MT mission without any dilution.

Lohia underscores the importance of expediting the upgrading and modernization of rolling stock to enhance efficiency in revenue generation. He also stresses the urgency of prioritizing the procurement of rolling stock assets, given the anticipated overage of around 45,000 wagons between 2024 and 2031. This implies that new stocks must be added at a higher rate to address the aging infrastructure and maintain the overall effectiveness of the railway system.

ICRA, in its Budget expectations note, emphasizes the significance of the FY2025 target for the government’s capital spending, which serves as a crucial driver of economic growth. The anticipation is that the government will keenly focus on this target in the upcoming budget. ICRA expresses confidence in the expectation of sufficient allocations towards infrastructure sectors such as roads, highways, railways, etc., for the fiscal year 2025.

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