The recent announcement of the Railway Budget for 2025 has led to a notable decline in the shares of several railway-related companies, including Rail Vikas Nigam Limited (RVNL), Jupiter Wagons, and Ircon International.
Most expected the railway capex to be increased by double digits, but disappointingly, the government has allocated Rs 2.5 lakh crore for railway capex in FY26, which is the same as last year.
This initiated a selloff in railways companies, with the shares of Jupiter Wagons sliding as much as 8% to Rs 347.4 on BSE on Monday while that of Ircon International dropped 5.6% to Rs 189.75. RVNL stock fell 6.5%, followed by a 4.3% decline in Texmaco Instruments share price, a 4.6% decline in IRFC shares, and Titagarh alloy shares were down by 7% on Monday.
The Budget also disclosed a slight rise in the total potential government capital expenditure from Rs 11,11,080 crore in the previous financial year to Rs 11,20,000 crore, which is much below the expectation of the market and negative for infrastructure stocks.
The fund proposed in the Budget was 27.46 trillion rupees, of which 17.33 trillion rupees were from revenue receipts and 10.13 trillion rupees from borrowings; this move of the government is said to have been repeated because the government ensured that tax benefits for consumption by boosting personal income tax were combined with a clamp on capital outlay by considering fiscal stability above growth.
Such an approach ensured that the individual investors were very cautious when it came to the issue of short-term growth of the railway sector.
But due to the sluggish investor response to the expectation along with the firm’s healthy December 2024 quarter earning, where the wagons maker posted 18% rise in its net profit to Rs 96.43 crore and 14.95% rise in sales to Rs 1, 029.83 crore.
Fitch added that Jupiter Wagons got clearance from its board to undertake a Rs 3,000 crore Qualified Institutional Placement (QIP) to increase capital, but its results are small fractionate by the weak generic picture in the sector.
It is believed that within the short term – infrastructure companies or those operating in the railway space may be under pressure due to a reduced capex from the government tirelessly.
Market Reaction
In anticipation of a significant increase in budget allocations for the railway sector, shares of railway-linked companies had seen substantial gains leading up to the budget announcement. However, following the revelation that allocations would remain unchanged, a sharp sell-off ensued:
- RVNL: Shares dropped by approximately 7% to ₹443.
- Ircon International: Experienced a similar decline of over 6%.
- Jupiter Wagons: Fell by more than 8%, closing at ₹377.5.
This sell-off reflects broader concerns about stagnant investment levels in a sector that many had hoped would see increased funding to support modernization efforts.