6 mins read . 30 Jan 2023
Railway stocks normally tend to be in action ahead of the Union Budget. There are several railway stocks in India, catering to the Indian Railways. In the past, there used to be a separate railway budget, but now it is integrated with the Union Budget. So anything for the railway related stocks also comes from the Union Budget. Railway stocks in share markets range from makers of coaches to engines to railway tracks to signalling systems and more. Here we look at the best railway stocks to invest in the Indian market and also the top railway stocks in the light of the Union Budget 2023.
The Union Budget 2023 is likely to focus a lot on capital spending and underplay spending on subsidies, especially non-merit subsidies. When we talk of capex, one area of big capex spending is railway infrastructure. Here are 8 reasons why the Union Budget 2023 is likely to be a favourable budget for the Indian railways and for railway stocks.
1) The markets can expect heavy spending by the government and even public private partnership proposals in the Union Budget 2023 for railway freight corridors. There has been a surge in the demand for rail logistics to transport goods as it works out cheaper in the long run compared to road transport. With the government planning to focus largely on capex in Budget 2023, railway infrastructure could be a big focus area.
2) One has to only look at the recent quarterly results and most of the income statements of Indian companies are showing a sharp spike in freight costs. With crude oil consistently above the $80/bbl mark, efficient spending on freight is mandatory and hence railway freight is going to be in great demand. Government is expected to allocate over Rs2 trillion to the railways in the budget.
3) Indian railways is already targeting to reach 45% of freight movement in India by the year 2030. That would require a massive capex and even routine spending by the Indian Railways. A lot of the spending will now happen on setting up dedicated freight corridors, redeveloping railway stations, making platforms conducive to freight lengths, maximum electrification coverage, gauge conversion, signalling systems etc.
4) With the need for fuel efficiency and a rising trade deficit, the budget is likely to focus on aggressive electrification coverage. This is likely to ensure substantial order books for companies like KEC of the Goenka group, which his one of the major players in the railway electrification business.
5) Listed government owned companies like the Rail Vikas Nigam Ltd (RVNL) and IRCON are likely to be the big beneficiaries of track expansion, conversion to broad gauge and construction of last mile railway tracks. This is expected to generate orders worth Rs50,000 crore with a big focus in the current Union Budget.
6) Massive expansion of rail connectivity and remote freight corridors will mean a huge investment in railway engines and railway wagons. Siemens India recently got a Rs26,000 crore order from Indian Railways for supply of 1200 engines of 9,000 HP. Apart from robust demand for engines, other companies like Texmaco Rail and Titagarh Wagons will also benefit from the increased demand for passenger and freight wagons.
7) Divestment is going to be another theme of the Union Budget with specific focus on railway related stocks. If railway related stocks get a good valuation, the government may consider hiving off some of its stake in these railway stocks. Some of the potential government divestment candidates related to the Indian railways are IRCTC, IRCON, Rail Vikas Nigam Ltd (RVNL), Indian Railway Finance Corporation, Bharat Earth Movers Ltd (BEML) etc.
8) Finally, there is also going to be an opportunity in stocks like Railtel due to the enhanced demand for telecom systems contracting.
Overall, it is likely to be a positive budget for the Indian Railways. The capex spending on railways this year is likely to be huge and railway stocks could be the big beneficiary.