Railway Stocks On A Rally; Shall Investors Onboard?
In May so far, RVNL, Jupiter Wagons and BEML stocks rally around 30 per cent, while Titagarh Railway System and IRFC gain more than 15 per cent
As the Indian stock market touched new milestones with significant gains in the past trading sessions, the benchmark indices, Nifty and Sensex, witnessed new highs after rebounding from volatile phases and FIIs selling pressure.
While election uncertainty lingered, the central cabinet and Prime Minister’s remarks boosted confidence among investors. The market capitalisation of National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) listed firms touched the USD 5 trillion mark this month.
Amid the market rally, railway stocks also displayed remarkable performance, particularly in the last week of May. RVNL, Jupiter Wagons, and BEML stocks rallied around 30 per cent, while Titagarh Railway System and IRFC gained more than 15 per cent. Additionally, Ircon India, Railtel, Concor, and IRCTC gained around 6 to 8 percent.
Valuation
“The financial health, book value, profitability, and growth potential of these stocks make them more valuable than private companies. As many trains and wagons have become old, there is surging demand for new and advanced train models. The rigid tendering process and heavy investment requirement make it challenging for private players to replicate the model, leaving only a few to capitalise on the growth of the broader sector,” said VLA Ambala, Research Analyst, and Co-founder, SMT.
However, Ambala believed railway stocks are currently overvalued. Instead of waiting for a deep dip or significant correction in price, she recommended entering these stocks to ride the prevailing rally with averaging or pyramiding strategies.
Election Outcome
As the stock market is poised to surge if the current regime comes with a massive majority, a surge is also inevitable in PSU stocks along with railway peers. As the government envisaged the USD 5 trillion economy, capital expenditure would play a massive role in boosting the Indian economy.
Ambala emphasised that irrespective of the election results, the railway sector will continue along its projected growth trajectory and opportunities with a minimum yearly growth rate of 40 per cent or higher. However, based on the overall momentum of the benchmark index, returns from this sector can even go up to 250 per cent within the next two years.
However, Jain advised caution as post-election, some profit booking could also be seen followed by a period of consolidation.
Next Budget
Railway stocks significantly fell during the interim budget as the presentation did not appease the expectations related to the allocation for railway expenditure.
Although the implementation of three major economic railway corridor programs was declared, including energy, mineral, and cement corridors, port connectivity corridors, and high traffic density corridors under the PM Gati Shakti scheme.
In the last budget (FY24), the government allocated Rs 2.4 lakh crore for railways, which was notably the highest-ever allocation. Huge capex expenditure by the government and the 'Make in India' campaign resulted in positive cues for the railway stocks rally.
Hence, the market is optimistic about the next full budget in June with the expectations that the government's push could drive growth in the Indian logistics and transport sector.
“With the full budget, there will likely be an urgency to complete running projects and initiate new ones. The government’s focus on enhancing connectivity and modernising infrastructure should translate into significant investments. These measures will boost the sector's growth prospects and generate positive sentiment among investors,” said Anshul Jain, Head of Research, Lakshmishree Investments and Securities.
Jain further added, given these expectations, the June budget holds promise for revitalising the railway sector. Investors should watch for declarations regarding new fund allocations and order flows, as these will be key indicators of the sector's future trajectory.
Stock Picks By Expert
Jain shared his best picks among the railway stocks with the technical levels and the target price.
IRCON has broken out of a three-month inside bar minicoil pattern around the Rs 245 level, indicating bullish momentum. It appears well-positioned to achieve levels around Rs 375, offering substantial upside potential for investors. This breakout suggests a strong trend continuation, making it an attractive entry point.
RailTel has been consolidating within a range of Rs 480 to 320 for 18 weeks, indicating a strong base formation. This stock is ripe for a breakout above Rs 480. Investors can consider buying at the current market price (CMP) of Rs 432 and adding more upon a confirmed breakout above Rs 480. This strategy allows investors to benefit from the potential upward movement while managing risk effectively.
IRFC also displays a similar three-month minicoil pattern, indicating bullish positioning. The stock is poised for a potential 15 per cent upside, presenting another compelling opportunity in the railway sector. The consistent pattern across these stocks highlights the sector's overall strength and growth potential.
IRCTC
The top pick in the railway sector is the monopoly company IRCTC. This stock has shown strong technical indicators, forming an 18-week long cup and handle pattern and breaking out at Rs 1,085. At its current market price (CMP) of Rs 1,114, the stock looks attractively priced and offers substantial growth potential.
The cup and handle pattern is a reliable bullish continuation pattern, indicating a period of consolidation followed by a breakout. This suggests that IRCTC is well-positioned for a significant upward movement. The breakout at Rs 1,085 confirms the bullish trend, making it an excellent entry point for investors.
At the current price, IRCTC looks dirt cheap considering its strong market position and growth prospects. The immediate target for the stock is around Rs 1,450, representing a substantial upside from the current levels. This target is based on the technical pattern and the company's robust fundamentals.
