Railway Stocks Rebound Strongly; IRFC, RVNL, Railtel Jump Up to 11% on Optimistic Sector Outlook

Railway stocks experienced a sharp rebound on March 14, 2024, after facing a correction of up to 15% earlier in the week. Prominent companies like RITES, IRFC, RVNL and IRCON International Ltd witnessed intraday gains of up to 11 percent. The surge can be attributed to the low free float of numerous railway stocks, where the government holds substantial stakes, in some cases up to 86%. 

This restricted supply, coupled with a sudden spike in demand, can trigger rapid price movements. The limited availability of shares for public trading amplifies the impact of increased investor interest, leading to significant stock price fluctuations.

The Surging Stocks

RITES Ltd, a Navratna public sector enterprise, saw its shares jump over 10%  to hit an intraday high of Rs 649.70 on the National Stock Exchange (NSE). The stock has surged 87% in the past year, outperforming the Nifty's 30% gain during the same period. Today, the 15th, as of writing, RITES Ltd was trading at Rs 606.60 on the NSE, down 6.1% from the previous close. The stock touched an intraday high of Rs 658.70 and a low of Rs 598.00

RITES Price Chart (Source: Investing.com)

IRFC, which has delivered returns of 408% in the past year, was up 10%. As of writing today, Indian Railway Finance Corporation Ltd (IRFC) was trading at Rs 135.60 on the NSE, down 3.4% from the previous close, with a trading range of Rs 133.45 to Rs 145.85 for the day.

Railtel, Ircon International and RVNL also soared up to 10%. Texmaco Rail, Titagarh Rail and Jupiter Wagons, which had fallen over 8% in its earlier session, rebounded with gains of up to 10%

Positive Outlook

According to a research analyst at Bigul, Khushi Mistry, the digital arm of Bonanza Portfolio, the outlook for the railway sector is positive due to a number of reasons, including improved government spending, forthcoming projects and beneficial order books of these companies.

"Investors can use corrections to either accumulate or even make fresh entries," Mistry told Moneycontrol.

Sudip Bandopadhyay of Inditrade Capital echoed this sentiment, stating, "If somebody picks up rail-related companies, there is absolutely no way they can go wrong with the kind of work which is happening in Indian Railways currently."

Sudip added, "So whether it's wagon manufacturing companies or the financing companies in the railway side, I think after some correction, there will be decent bets for the long term."

Driving Factors

The optimistic outlook for the railway industry is fueled by several key drivers. The Indian government has unveiled ambitious plans to expand and modernize the nation's railway infrastructure, which is expected to generate significant demand for services and products related to this sector. 

Also, the central government's recent budgets have allocated substantial funds towards railway development, demonstrating a strong commitment to the growth of this industry. Apart from that, numerous railway companies including RITES, IRFC, RVNL and IRCON International, have secured potent order books, providing them with a clear visibility into their future revenue streams . All these contribute to the positive sentiment surrounding the railway sector's prospects.

Investor Sentiment

The sharp rebound in railway stocks reflects investors' confidence in the sector's long-term prospects. While short-term corrections are expected, analysts believe these dips present opportunities for investors to accumulate or initiate positions in railway-related companies.

As the Indian economy continues its growth trajectory, the demand for efficient and modern transportation infrastructure is expected to rise, boding well for the railway sector's future performance.