6 reasons why railway stocks have shined in 2023; will the momentum continue?—Analysts decode

Some of the railway stocks have seen a good run in 2023, not only public but a few private sector rail stocks have also rewarded investors with multi-bagger returns. 

In 2023 so far, among PSU rail stocks- Ircon International has surged 180 per cent; Indian Railway Finance Corp (IRFC) has rallied over 171 per cent; RVNL has gained over 163 per cent; and Railtel Corporation has gained over 129 per cent. 

Similarly, Rites shares have risen 47 per cent; the BEML scrip has soared over 69 per cent; and Indian Railway Catering and Tourism Corp Ltd (IRCTC) shares have risen over 23 per cent. 

On the other hand, private companies' stocks like Jupiter Wagons and Titagarh Rail Systems have given returns of over 230 per cent and over 118 per cent, respectively, in 2023. 

Analysts' take on why railway stocks are running fast: 

1. Development in railway infrastructure and spending

According to CFA Aditya Goela, co-founder, Goela School of Finance, the first half of FY23 witnessed a 91 per cent increase in railway capital expenditure, showcasing the intent to propel growth.

2. Revamping of stations and trains

The revamp of major stations like New Delhi, Mumbai, and Ahmedabad, coupled with the production of 400 new-generation Vande Bharat trains, demonstrates a commitment to modernisation and efficiency.

3. Capital outlay during budget 

According to Vaibhav Jain, Head of Content & Education, Share.Market (PhonePe Wealth), one of the reasons for the rally in rail stocks is the government's announcement of a Rs 2.40 lakh crore capital outlay for Indian Railways in this year’s Union Budget, which is the highest-ever outlay and about nine times the outlay made in 2013-14.

Teja Ramineni, co-founder, Avenue Holdings, also believes that PSU rail stocks surged after the budget announcement.

4. Growth in the passenger segment 

The railway segment has seen growth in passenger count due to urbanisation and rising income. According to Share.Market's Jain, India is projected to account for 40 per cent of the total global share of rail activity by 2050.

5. FDI inflows 

According to analysts, FDI inflows in railway-related components stood at US$ 1.23 billion in March 2023, and rail infrastructure is estimated to see an investment of Rs 50 lakh crore by 2030, which is also a reason for positive buying among railway stocks.

6. Budget 2024 effect 

According to Anirudh Garg, Managing Partner and Fund Manager at Invasset, anticipation is growing ahead of Union Budget 2024, with Finance Minister Nirmala Sithraman engaging in pre-budget consultations.

What's next for the sector? 

Arafat Saiyed, Vice President, Incred Capital, believes that in the coming years, investment is likely to continue in railways with the introduction of the new Vande Bharat train and on safety new tenders for the Train Collision Avoidance System (TCAS).

CFA Aditya Goela believes the announcement of the India-Middle East-Europe economic corridor is a game-changer. This mega project, connecting India, the UAE, Saudi Arabia, and Europe, presents unprecedented opportunities for the railway sector.

What's the track ahead for railway stocks?

Share.Market (PhonePe Wealth) believes that the growth of railway companies' shares might not be aggressive going forward, but they still have huge potential upside in the long run. If the investor's horizon is mid- to long-term, some of these stocks are still worth investing in.

Echoing his sentiment, Rajesh Sinha, Sr. Research Analyst, Bonanza Portfolio said, "Based on the government’s emphasis on adding new trains and laying railway tracks, the momentum in PSU railway stocks is expected to continue." 

Atul Parakh, CEO of Bigul, also expects the railway counters to do well in the coming quarters as order inflows are likely to continue, given the ongoing boost in the sector. 

According to Parakh, among stocks, Railtel, IRCTC, and Ircon International are gaining investor attention.

Vaibhav Kaushik, Research Analyst, GCL Broking, is bullish on the IRCTC, IRFC, and Ircon International stocks.

"Stocks started rallying due to many factors, including the G20 summit. The budget allocation for the railway is the highest in 2023. An increase in railway lines and coaches as well as passenger carry limits by 30 per cent in the next 3 to 5 years was recently announced. All these factors show visibility for the next 3 to 5 years. So, strength in these stocks will remain."  

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