Railway Shares Tumbled from Its Highest Level Amid Market Sell-off

Shares of Indian Railway Public Sector Undertakings (PSUs) are facing a significant downturn, with IRFC, RVNL, IRCON, and others experiencing losses of 4-5% on Monday. This decline is in sync with a broader global market sell-off that has impacted Indian equities.

The current slump marks a sharp reversal from the peak performance these stocks enjoyed in July. IRFC, RVNL, and IRCON International had all reached record highs on July 15 but have since corrected by 20%, 16%, and 24%, respectively. RailTel, which achieved its peak on July 12, has also seen a 24% correction.

Despite these price drops, most railway PSUs continue to trade at elevated valuations compared to their five-year averages. RailTel, for instance, commands a hefty price-to-earnings (P/E) multiple of 47.4 times for FY25, significantly above its five-year average of 32.6 times. Similarly, RVNL’s P/E of 71.2 times for FY25 dwarfs its five-year average of 22.4 times.

IRCON International, though corrected, still trades at a P/E of 18.9 times for the current year, exceeding its five-year average of 14.3 times. Only IRCTC appears to be somewhat aligned with its historical valuation, trading at a current-year P/E of 55.85 times, in line with its five-year average.

The recent decline in railway PSU stocks has raised concerns among investors about their overvaluation. While the sector benefits from the government’s infrastructure push, the current market sentiment suggests a cautious approach.

About Railway Sector

One of the biggest railway networks in the world operated by a single administration is acknowledged to exist in India. Additionally, the railway network is perfect for bulk commodity transportation and long-distance travel. By the end of FY24, the Indian Railways had earned a total revenue of ₹2.40 lakh crore (US$ 28.75 billion). In FY 2023–2024, the total number of passengers rose by 52 crore to 648 crore. Compared to the loading of 1512 MT in FY23 last year, freight loading increased to 1500 MT in FY24.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.