RVNL, IRFC, BEML, IRCON, Texmaco shares zoom; what's driving the surge in railway stocks?

Railway stocks witnessed strong buying interest in Wednesday's trade, with a majority of pure-play railway counters and select railway-linked stocks recording sharp gains.

Rail Vikas Nigam Ltd (RVNL), Indian Railway Catering and Tourism Corporation Ltd (IRCTC), IRCON International Ltd, Indian Railway Finance Corporation Ltd (IRFC), Titagarh Rail Systems Ltd, Jupiter Wagons Ltd and Texmaco Rail & Engineering Ltd were among the notable gainers.

Railway-linked stocks such as BEML Ltd and Container Corporation of India Ltd (CONCOR) also witnessed a sharp uptick.

Why are railway stocks rising?

Market veteran Arun Kejriwal said the recent buying by foreign investors reflects confidence in the Indian market. He added that investors appear to be favouring large-cap stocks, which offer relatively greater comfort compared with small-cap stocks.

With that being said, Kejriwal noted that the movement in railway stocks is part of the usual pre-Budget sector rotation, amid expectations of higher government spending and investment. With the Budget still about three months away, such rotation could continue, he added.

Kejriwal said investors should understand the business models of individual companies before taking an investment call.

Kranthi Bathini, Equity Strategist at WealthMills Securities, said, "Railway stocks were in a momentum zone a couple of years ago, but subsequently entered a prolonged period of consolidation. With the stock market witnessing a continued recovery, we are seeing some bottom fishing in these stocks amid expectations of higher allocations in the upcoming Budget."

Bathini also said, "These stocks appear relatively well-positioned after their extended consolidation phase. One can expect stock-specific rallies, with individual stock performance driven by quarterly results likely to sustain these moves. Investors should adopt a stock-specific approach at this point in time."