PSU rail stocks zoom up to 70% in a month. Should you board this bullet train?

NEW DELHI: The rally in PSU stocks seen in the last few weeks is not just limited to banks and defence stocks as investors in rail stocks are also having a field day. In the last one month alone, at least 4 rail PSU stocks have given double-digit returns with Rail Vikas Nigam (RVNL) leading the pack by zooming over 70%.

Most of these rail PSU stocks have been trading at relatively cheaper valuations, clean balance sheets and attractive dividend yields for a long time. So why this sudden investor interest?

"Investors are now beginning to realise the implications of the government's massive capex spending of which the railways is the biggest beneficiary. The government is increasing its capex and at 19%, the railways have the highest share of spending," points out smallcase manager Abhishek Basumallick of Intelsense Capital.

A bulk of the money spent is being invested in modernising and electrification of railway lines and tracks. Besides allocating over Rs 19,000 crore for various Metro projects across India, Finance Minister Nirmala Sitharaman had also announced 400 new 'Vande Bharat' trains.

"Stocks in India go up for two reasons - growth or the expectation of growth. Here it is because of the second factor. Railways will benefit as long as the capex boom is there," the market expert said, adding that the cycle may last 3-4 years ahead of the 2024 Lok Sabha elections.


IRFC and Ircon International are not just trading at single-digit PE multiples but are also available at attractive dividend yields of 4-5% each. While IRFC is up 31% in the last one month, Ircon has rallied over 46%.

Mini Ratna PSU RVNL, which is trading at a price to book value of 1.83, is up 94% in the last 6 months. The company has an order book of Rs 75,000 crore, which is about 4 times its revenue.

Rites, on the other hand, has rallied over 50% in 6 months and comes with a dividend yield of 4.47%.

Basumallick is bullish on RVNL, Rites and Ircon among PSU rail stocks. HBL and Jupiter Wagon are his two other picks but from the private sector.

Independent market advisor Sandip Sabharwal said the overall investment cycle in railways is very strong. He owns Titagarh Wagons and Texmaco. "Titagarh reported very strong numbers. These two stocks are something which we own, albeit from much lower levels from their current prices. I still think that next two-three years will be good for them," he said.

As discussions around Budget 2023 have already started, the market is also speculating around announcements of new rail projects and divestment of government stake in some listed rail firms.

(With data inputs from Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)