Railway Sector Gains from Budget 2025: Stocks to Watch

The railway sector has been a key focus area for infrastructure development in India, with consistent capital expenditure (capex) allocations by the government. In the past few years, railway-related stocks have performed well due to strong investment commitments. The trend continued into the first half of 2024, driven by expectations of continued railway infrastructure spending.

However, capital expenditure saw a slowdown in the early months of FY25, reaching only 37.3% of the annual target by August, compared to 49% in the previous year. This was largely due to general elections and delays in project execution. As a result, the government is now expected to accelerate spending to meet its targets.

With the upcoming Union Budget 2025, increased allocations towards railway infrastructure are anticipated, creating potential investment opportunities in railway-related stocks. Here are five key stocks to watch for potential pre-budget gains.

1. Indian Railway Finance Corporation (IRFC)

IRFC is the dedicated financing arm of Indian Railways, responsible for raising funds for railway projects.

IRFC has been a major beneficiary of railway capex, as increased allocations lead to higher financing requirements. The company has also been diversifying into port and logistics financing, which could enhance its profitability. IRFC has maintained a zero Non-Performing Asset (NPA) status, ensuring financial stability.

2. Texmaco Rail & Engineering

Texmaco Rail & Engineering is a major player in railway manufacturing and engineering services. It specializes in freight car manufacturing, rail EPC projects, and hydromechanical equipment production.

Texmaco stands to benefit from the government’s continued focus on expanding railway infrastructure. The Indian Railways aims to increase its freight market share to 45% by 2030 under the “Mission 3000 MT” initiative, driving demand for wagons and locomotives. The company has also been focusing on export opportunities, expanding its global market presence.

3. RITES

RITES is a leading consultancy firm offering services in transport infrastructure, railway leasing, and project management.

Financial Performance:

Despite a relatively slower financial performance in recent years, RITES could see renewed demand for its services due to the government’s focus on transport infrastructure. The company is expanding internationally under its ‘RITES Videsh’ initiative, targeting Southeast Asia, Africa, and the Middle East.

4. Ircon International

Ircon International is a public sector enterprise specializing in railway infrastructure development, including electrification, track doubling, and high-speed rail projects.

With over 83% of its revenue coming from railway projects, Ircon is well-positioned to benefit from government initiatives. The company has a strong order book of Rs 242 billion as of September 2024, ensuring stable revenue growth. The National Rail Plan (NRP) aims to modernize rail infrastructure, and Ircon’s expertise in high-speed and dedicated freight corridors makes it a key beneficiary.

5. Container Corporation of India (CONCOR)

CONCOR is a market leader in containerized rail freight and logistics services.

The company is investing in multi-modal logistics parks (MMLPs) and double-stack train operations to enhance efficiency. With the Dedicated Freight Corridor (DFC) nearing completion, CONCOR is expected to see significant volume growth. Government policies promoting logistics and rail freight will further benefit the company.

Conclusion

The upcoming Union Budget 2025 is expected to emphasize railway infrastructure, potentially driving gains in railway-related stocks. Increased budgetary allocations, freight corridor developments, and logistics enhancements create a favorable environment for companies in the sector.

However, it is important to consider potential fiscal constraints that may impact the extent of capex allocations. Investors should conduct thorough financial research before making investment decisions to align with their risk tolerance and financial goals.

Market this week

Source: BSE and NSE

• The Indian equity markets remained volatile for the week ending January 24, weighed down by FII outflows, mixed Q3 earnings, and global uncertainties, though supported by a stronger rupee and lower crude prices. 
• The Nifty Realty index fell 9%, while Nifty Energy, Media, and Oil & Gas declined 4-4.5%, whereas Nifty IT gained 3.5% and FMCG edged up 0.5%. 
• FIIs offloaded equities worth Rs 22,504.08 crore, while DIIs provided support with Rs 17,577.36 crore in net purchases. 
• For January so far, FIIs sold Rs 69,080.14 crore, nearly offset by Rs 66,944.50 crore in DII buying. 
• As investors await Budget 2025, market direction will hinge on policy announcements, global trends, and institutional flows.

Weekly Leaderboard

Source: BSE

Stocks that made the news this week:

• Granules India shares declined nearly 4% on January 24 after reporting a 6.4% YoY drop in Q3 FY25 net profit to Rs 118 crore. However, the stock recovered some losses and closed at Rs 582.35, marking a 3% decline from the previous day.

• Paytm shares dropped over 8% intraday on January 24 following media reports of an ED probe into a crypto scam but later recovered. The company denied receiving any such notice from the ED, calling the news “factually incorrect and misleading” in a stock exchange filing.

• Cyient shares crashed over 19%, hit by weak Q3 earnings, a cut in FY25 revenue growth guidance to -2.7%, and the resignation of CEO Karthikeyan Natarajan. Promoter Krishna Bodanapu took over as interim CEO, but the negative triggers led analysts to lower earnings estimates and target prices, worsening the stock’s fall.