Railway stocks: Nuvama Institutional Equities in a fresh note said the Union Budget 2025 failed to meet investors’ high expectations pertaining to infra capex, with total capex up nearly 11 per cent over FY25 revised estimate and 5 per cent compared with FY25 budgeted estimate. It said while the FY26 outlay for metro rail is higher by 35 per cent and 19 per cent over FY25 Budget estimates and revised estimates, those for roads and railways are flat YoY vis-a-vis FY25.
The rolling stock was a bright spot in the rail capex pie. Outlays for water and affordable housing too were sluggish while there was nil allocation for ‘Smart City’ mission in the Budget 2025, Nuvama said.
"The tepid growth in capex outlay is disappointing for companies in the roads and water segments; on the other hand, continued focus on rail rolling stock shall aid companies such as Titagarh and Texmaco Rail," the brokerage said.
The outlay for railway rolling stock was up 13 per cent YoY from FY25 (BE) while that for civil construction (doubling, gauge conversion, new lines, etc) was flat YoY. Railways intends to buy a higher number of passenger coaches in FY26, which suggests more Vande Bharat tenders may get floated. Wagon procurement also remains in the fast lane, Nuvama said.
The domestic brokerage said the capex outlay in the Budget was disappointing for the second consecutive year and as the FY25 (RE) capex figures were just 5 per cent higher compared with FY24 while FY26E budgeted outlay is also 5 per cent up over FY25 (BE).
"The increase in capex for metro rail and AMRUT is positive; on the other hand, muted capex outlay for roads, railways, water, urban infra, affordable housing, etc is a clear negative. In this backdrop, asset monetisation would emerge as a critical catalyst for achieving long-term infra. The railway rolling stock companies have witnessed a sharp correction in prices due to concerns about rail capex; the disappointment in the budget means some more pain is possible," Nuvama said.
Nuvama said it continues to prefer companies that have low leverage and focus on segmental diversification such as NCC Ltd, since they would be able to tap into the unfolding opportunities better.