Street gets clear signal with government's rail infra push, PSU stocks rise

State-owned railway firms extended their record-breaking winning run on the bourses as expectations of increased spending to boost railway infrastructure in the country lifted investor sentiment. On Tuesday, a rally in Rail Vikas Nigam (RVNL) sparked buying interest in other state-owned railway firms.

RVNL jumped 10% - the highest tradable limit of the day - to close at an all-time high of ₹118.30 apiece on the NSE. Its shares advanced for the second day in a row after emerging - with its joint venture partner SCC - the lowest bidder to build a canal project in Rajasthan.

Shares of Indian Railway Finance Corp (IRFC) advanced 6.3% on Tuesday to close at a near four-month high of ₹33.75 apiece on the NSE, while shares of Ircon International surged more than 16% to make a new high of ₹86.25. RITES soared 7.6% to ₹414.5.

Railway PSU shares have been among the best performers in recent months owing to the government's capital outlay plans to build rail infrastructure across India.

Analysts said the rolling out of high-speed trains (Vande Bharat) besides targeting 100% electrification of the rail network by 2023 augurs well for the sector.

"Capex will remain elevated for the next two-three years and this will throw up opportunities for a lot of companies," Pankaj Pandey, head of research at ICICI Securities. "The railway story looks positive and could result in PE expansion of railway-oriented companies."

RVNL shares have risen 66% in the last month, with the bulk of the gains in the last seven trading sessions after the company received 'Navratna' status. The stock has given 1.7 times returns in six months and 2.6 times in one year.



IRFC has risen 48% and Ircon has risen 81% in the past six months, helping the CPSE index rise nearly 7%. In comparison, the Sensex has risen 0.9% in the last six months.

Analysts said the rise in railway shares reflects the expansion in India's railway sector through several projects including laying of new lines, gauge conversion, electrification, and signalling.

Shares of state-owned BHEL - supplier of electric locomotives - gained more than 4% on Tuesday to close at a four-month high of ₹81.65. It has risen 17% in the last month.

In this year's Budget, finance minister Nirmala Sitharaman allotted capital expenditure of a record ₹2.4 lakh crore for the Indian Railways. This is 71% higher than in last year's budget and a whopping nine times the amount provisioned in 2013-14.