The steep correction has left investors questioning what went wrong with railway PSU stocks and whether the worst of the downturn is over. Market experts attribute the decline largely to stretched valuations, slower growth and shrinking profit margins, despite Indian Railways continuing to increase its capital expenditure.
According to Tushar Badjate, Director of Badjate Stock & shares Pvt Ltd, the decline represents a correction following decades of gains.
“This is a valuation correction first and an earnings correction second. In 2023 and 2024, these stocks were priced for a decade of perfection. IRCTC hit an all-time high of ₹1,318 in May 2024 and is now down about 61% from that peak. RVNL and IRFC have fallen between 45% and 53% from their 52-week highs,” Badjate said, identifying three key factors behind the correction.
Slower growth and declining margins have emerged as major concerns for railway PSUs. However, the downturn does not indicate a reduction in railway spending. Badjate highlighted that railway capital expenditure for FY27 stands at a record ₹2.93 lakh crore.
“What did not break is spending. Railway capex for FY27 is a record ₹2.93 lakh crore. The money is flowing. It is just not reaching these companies at the old margins,” he said.
Railway PSU Stocks Face Valuation and Earnings Pressure
Public sector stocks often attract investor interest because of their government backing, relative stability and long-term growth prospects. However, the recent correction in railway PSU stocks reflects expectations that had moved ahead of underlying business fundamentals, according to Badjate.
While order books remain substantial, earnings concerns have increasingly centred on margins and the pace at which projects translate into revenue.
“Order books look healthy. RVNL has ₹93,492 crore and RITES has a record ₹9,445 crore. The problem is conversion. Only about ₹40,000 crore of RVNL's book is actually under execution. Its EBITDA margin is just 4.4%. IRCTC grew revenue 18% last quarter, yet profit was flat as its margin fell to 28.2% from 34.3%. IRCON's consolidated profit dropped to ₹92.7 crore from ₹164.6 crore on losses from joint ventures. These companies are no longer protected monopolies. They are contractors competing for work. Contractors do not deserve 50 to 60 times earnings,” Badjate added.
The figures highlight the challenges facing railway companies despite strong order books and continued government investment. The ability to execute projects efficiently, sustain margins and translate orders into profits has become a key consideration for investors reassessing valuations.
Railway PSU Stocks Outlook: What Experts Expect
The correction has made valuations more attractive for some railway PSU stocks, although Badjate cautioned that this does not apply uniformly across the sector. He identified IRFC as a safer choice for conservative investors focused on income.
Looking ahead over the next 12 months, Nitant Darekar, Research Analyst at Bonanza, expects railway PSUs to benefit from a sustained capital expenditure cycle, with Indian Railways' FY27 capital outlay reaching a record ₹2.93 lakh crore.
“RVNL offers the deepest visibility with a Rs. 93,492 crore order book, guidance of about 15% revenue growth and diversification into ports, hydro and overseas work, though thin margins cap upside,” Darekar explained.
RVNL's sizeable order book and diversification plans provide visibility into its business pipeline, but its relatively thin margins remain a constraint on potential gains. For investors assessing railway PSU stocks, order book strength alone may not be sufficient to determine future performance.
IRFC Technical Outlook: Bearish Trend Persists
IRFC's technical outlook remains weak, with its primary trend still bearish. The stock's ongoing momentum points to a series of lower highs and lower lows from its peak.
“Although the RSI at 52.56 indicates a slight neutral recovery attempt, it lacks decisive momentum. This is not a fresh buying opportunity because the stock remains trapped under a heavy bearish structure,” stated Virat Jagad, Sr. Technical Research Analyst at Bonanza.
The outlook suggests that, despite the correction in railway PSU valuations and the government's record capital expenditure plans, investors continue to face concerns over earnings growth, profitability and price momentum. The performance of RVNL, IRFC, IRCON, RITES and IRCTC will remain closely linked to their ability to convert business opportunities into sustainable earnings.
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