IRFC, RVNL, IRCON Tank 15% as Budget Leaves FY26 Capex Unchanged

In the aftermath of the Union Budget announcement, five major railway Public Sector Undertakings (PSUs) have experienced significant declines in their stock prices, collectively losing approximately ₹40,000 crore in market capitalization over two trading sessions. This downturn is closely linked to the government’s decision to maintain the capital expenditure (capex) for the Indian Railways at ₹2.65 lakh crore for the fiscal year 2025-26, mirroring the previous year’s allocation.

This decision has raised concerns among investors and market analysts who anticipated a higher allocation to support the railway sector’s ongoing and new infrastructure projects.

Investor Sentiment and Market Reaction

The unchanged capex allocation has led to apprehensions regarding the future growth prospects of railway PSUs. Investors expected increased funding to strengthen infrastructure development, enhance safety measures, and introduce modern technologies. The static allocation has been perceived as a potential constraint on these initiatives, leading to a sell-off in railway stocks.

Understanding the Implications

To comprehend the situation better, let’s break down the key aspects:

1. Capital Expenditure (Capex): Capex refers to funds an organization uses to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment. In the context of Indian Railways, capex is crucial for expanding and modernizing the railway infrastructure.
   
2. Market Capitalization: This is the total market value of a company’s outstanding shares of stock. It is calculated by multiplying the current market price of one share by the total number of outstanding shares. A decline in share price directly reduces the market capitalization.
   
3. Investor Expectations: Investors often anticipate increased government spending in sectors like railways to drive growth. When the budget allocation does not meet these expectations, it can lead to negative sentiment and a subsequent sell-off in related stocks.

Potential Impact on Railway PSUs

The unchanged capex allocation could have several implications for railway PSUs:

– Project Funding: Limited additional funds may restrict the ability of these companies to undertake new projects or expand existing ones.

– Technological Upgrades: Investment in modern technologies and safety systems might be delayed or scaled back due to budget constraints.

– Revenue Growth: With potential limitations on project expansion, revenue growth projections for these PSUs could be adversely affected.

Detailed Stock Performance

The following railway PSUs have been notably affected:

1. Rail Vikas Nigam Limited (RVNL):

RVNL’s stock has declined up to 15% over the two sessions. The company’s net profit for the second quarter fell by 27% year-over-year to ₹287 crore, with revenue decreasing by 1.2% to ₹4,855 crore. The Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) margin narrowed to 5.6% from 6% in the previous year. 

2. Indian Railway Finance Corporation (IRFC):

IRFC has also faced a significant drop in share price, contributing to the overall decline in market capitalization among railway PSUs.

3. IRCON International:

The stock of IRCON International has declined by up to 15%. In the second quarter, the company reported an 18% decrease in net profit to ₹206 crore, while revenue dropped by 19% to ₹2,447.5 crore. However, the EBITDA margin slightly improved, increasing to 8.2% from 8.6% in the previous year. 

4. RITES Ltd.:

RITES has experienced a downturn in its stock price, aligning with the broader trend among railway PSUs following the budget announcement.

5. Container Corporation of India (CONCOR)

CONCOR’s shares have also been impacted, contributing to the cumulative market capitalization loss observed in the sector.
Source: CNBC TV18

Comparative Analysis: Budgetary Trends and Market Response

Understanding how the market reacts to capital expenditure (capex) allocations in the railway sector requires looking at past budgetary trends and their effects on stock performance. Let’s analyze how previous years’ allocations compare with the FY26 Budget and why investors reacted negatively this time.

1. Capex Allocations Over the Years

Over the past few years, Indian Railways has steadily increased capital expenditure. Here’s a quick look at the trend:

Fiscal Year	Capex Allocation (₹ lakh crore)	YoY Growth (%
2022-23	2.45	14.5%
2023-24	2.60	6.1%
2024-25	2.62	0.8%
2025-26	2.65	1.1%

• In FY23, the budget allocation jumped 14.5%, driven by a push for infrastructure expansion and modernization projects, boosting investor confidence.
• The increase slowed to 6.1% in FY24, but expectations remained positive as the government prioritized railway expansion.
• In FY25, capex growth almost stagnated at 0.8%, raising concerns about future project expansion.
• In FY26, capex remained unchanged at ₹2.65 lakh crore, an apparent deviation from past trends that triggered a sharp sell-off in railway PSU stocks.

2. Investor Expectations vs. Reality

Investors had been expecting a double-digit increase in railway capex for FY26, considering:

• The continued push for infrastructure development in India.
• The government’s emphasis on Make in India and expansion of high-speed rail networks.
• A growing focus on modernization and digitalization of railway operations.

However, the unchanged capex allocation defied these expectations, leading to a sharp decline in railway stocks.

3. Impact on Railway PSU Stocks in Previous Budgets

• FY23 & FY24: When railway capex increased significantly, stocks of railway PSUs like RVNL, IRFC, and IRCON surged as investors saw growth potential in new projects and higher revenues.
• FY25: The relatively lower increase in capex led to mixed reactions, with some stocks remaining stable while others faced mild corrections.
• FY26: The completely unchanged capex allocation sparked an aggressive sell-off, leading to market capitalization losses of around ₹40,000 crore in just two sessions.

4. What Changed This Year?

• Budget Priorities Shifted: The government may focus on efficiently utilizing past allocations rather than announcing additional funds.
• Election-Year Impact: With general elections approaching, budget allocations often balance fiscal responsibility with infrastructure growth.
• Higher Borrowing Costs: Rising interest rates and macroeconomic factors could have influenced the decision to postpone additional railway spending.

While the immediate market reaction has been adverse, it’s essential to consider the broader context. The government’s consistent investment in the railway sector over the past years indicates a long-term commitment to its development. Additionally, the unchanged capex could be a strategic decision, focusing on efficiently utilizing previously allocated funds before committing additional resources.

Conclusion

The recent decline in railway PSU stocks highlights the market’s sensitivity to budgetary allocations and investor expectations. While the unchanged capex for FY26 has led to immediate concerns, monitoring how these companies adapt to the allocation and manage their projects and resources is crucial. Investors should stay informed about policy developments and the strategic initiatives of these PSUs to make well-informed decisions. 

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