IRFC, IRCON, HAL, BEL shares: Can interim Budget 2024 give railways, defence stocks a shot in arm?

Nuvama Institutional Equities in its interim Budget preview note said the market is expecting the Finance Minister Nirmala Sitharaman to announce a 20 per cent-plus jump in railways capex, led by further expansion of DFC, rolling stock, HSR networks, etc as outlined in the National Rail Plan (NRP). For the defence sector, it said the market is expecting the capital outlay to grow at 12–15 per cent YoY on the back of systems modernisation, infra development and iDEX, as the focus on indigenisation and exports ramp-up endure.

Among railways stocks, IRFC has surged 68 per cent in January so far. Rail Vikas Nigam Ltd (RVNL) is up 63 per cent while Ircon International Ltd gained 36 per cent during the same period.  Titagarh Rail Systems Ltd (up 4 per cent) and Texmaco Rail & Engineering Ltd (up 17 per cent) have also gained in January so far.

Against the market expectations, Nuvama believes the defence capex is likely to be increased by 5–8 per cent YoY with higher allocation towards R&D, UAV/drones, anti-drone systems, as some key large systems are already in the pipeline.

"While on a short-term basis, there could be slight pessimism in the market, medium to long-term outlook remains intact as orders from MoD would continue to flow," Nuvama said.

In the case of railways, Nuvama expects robust capex outlay momentum to continue (15–20 per cent YoY growth) as the focus shifts to rolling stock, safety, new tracks laying, etc over coming years against electrification in last decade.

"Even if Railways' capex allocation remains stagnant, we still see higher allocation towards the private sector versus self capex ordering done earlier," it said.

Among defence players, shares of Hindustan Aeronautics Ltd (HAL) are up 3.6 per cent in January. Bharat Electronics Ltd (up 2 per cent), Bharat Dynamics Ltd (flat) and Mazagon Dock Shipbuilders Ltd (up 1 per cent) have gained marginally during the same period.

Nuvama said railways announcements in the Budget would be positive for players across the spectrum ranging from consultancies to project players and to equipment suppliers. Any announcement on roadmap for higher rolling stock procurement in railways, which Nuvama said is likely, would particularly be positive for rolling stock players like Titagarh and Texmaco Rail, it said.

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