Railway stocks have rallied sharply over the past few weeks despite flat capex in FY26 and medium-term growth prospects. Analysts of Kotak Institutional Equities ascribed the rally to euphoria in mid-and-small cap stocks, and a positive rub-off effect from other narratives.
The market capitalisation of seven railway stocks — , RailTel, Ircon International, Rites, Jupiter Wagons, and — has zoomed 20 per cent or ₹61,000 crore in the past month, the report noted.
The analysts warned of a ‘large disconnect’ between the fundamentals and the valuations of railway stocks.
“PSU railway stocks trade at several times book value (net worth) and at very rich price-earnings (P/E) multiples. The valuations are very hard to reconcile with the financials and growth prospects of the companies,” the report read.
The market is clearly not making any distinction across sectors and stocks, as long as they fit into some prevailing narrative (defence, electrification, manufacturing, railways). The analsysts noted that cash and investments account for a large portion of the book value and other income is a significant portion of the pre-tax profits of the companies.
Many of the ‘narrative’ stocks are largely owned by retail shareholders, which may partly explain the periodic bouts of extreme volatility in the stocks, it added.
Kotak noted that the outlay for railway capex stood at ₹2,426 billion in FY24, ₹2,519 billion in FY25 revised estimates and ₹2,520 billion in FY26 budget estimates.
“The bulk of the capex of the railway sector is captured in the central government budget, with only a portion of capex pertaining to metro projects captured under a different head of government spending. Even spending on metro has not seen a meaningful pickup,” it said.
Meanwhile, ratings agency ICRA’s analysis report in April 2025 would grow at a moderate pace of 5 per cent in FY26.
It added that the growth would be led by wagon manufacturers, while construction companies involved in railway-related infrastructure projects may see relatively slower growth.
Going ahead, Kotak analysts also do not see a meaningful pickup in railway capex in medium term. Key reasons include: may have largely maximized the capacity of its extant railway network with large investments in rolling stock and track over the past ten years and low visibility on new projects such as a high-speed railway network on the lines of dedicated freight corridors or the upcoming Ahmedabad-Mumbai high-speed line.