Railway-linked stocks staged a strong comeback in early trade on Friday, emerging among the top gainers on Dalal Street after months of underperformance. At around mid-morning, shares of Rail Vikas Nigam Limited (RVNL), Indian Railway Finance Corporation (IRFC) and Indian Railway Catering and Tourism Corporation (IRCTC) surged sharply, reflecting renewed investor confidence in the sector. The rally marked a decisive shift in sentiment toward railway stocks, which had lagged the broader market through much of 2025.

Pre-Budget Positioning Fuels Buying

A key driver behind the up-move is pre-Budget positioning ahead of the Union Budget 2026–27. Historically, railway stocks attract buying interest in the weeks leading up to the Budget as investors anticipate higher government allocations for infrastructure, rolling stock, safety systems, electrification and network expansion. With railways expected to remain a core pillar of India’s infrastructure push, investors are rebuilding positions in anticipation of fresh policy support and capital expenditure announcements.

“The rally in railway stocks is being driven by building expectations ahead of the Union Budget. There is a strong anticipation that the government will further scale up railway capex and overall infrastructure outlays, and this positive outlook is being reflected in the sector’s performance,” said Kranthi Bathini, Director of Equity Strategy at WealthMills Securities.

Fare Rationalisation Lifts Sector Sentiment

Another major catalyst has been the implementation of a revised passenger fare structure effective December 26. This marks the second fare hike in 2025–26 and is aimed at improving the financial sustainability of Indian Railways. Under the new structure, ordinary non-AC fares have been increased in a graded manner, while Mail and Express trains, both AC and non-AC, have seen a uniform hike of 2 paise per kilometre. Though modest for passengers, the cumulative revenue impact is significant and has been welcomed by markets as a positive step toward better financial discipline.

Revenue Visibility Benefits Ecosystem Players

The fare rationalisation has improved revenue visibility across the railways ecosystem. Companies such as IRCTC, which benefit from ticketing volumes, catering, tourism and ancillary services, are viewed as indirect beneficiaries of stronger passenger economics. Even marginal fare increases signal a willingness to address long-standing revenue challenges, boosting confidence in the sector’s long-term earnings stability.

Shravan Shetty, Managing Director of Primus Partners, said the gains were linked to the fare hike announcement and its potential impact on railway finances.

“While railway stocks are not directly impacted by fare revisions, an improvement in the financial health of Indian Railways could accelerate capital expenditure and support revenue growth for wagon and infrastructure players,” Shetty said.

Sunny Agrawal, Head of Fundamental Research at SBI Securities, said the rally has largely been driven by Budget-related expectations. He said the initial trigger was the conversion of a preferential issue by the promoter of Jupiter Wagons, which led to a sharp rise in the stock and subsequently spilled over to other railway engineering, procurement and construction (EPC) companies.

Agrawal said SBI Securities prefers wagon-related businesses and sees the current rally as an opportunity to book profits in railway EPC stocks such as IRCON, RITES and RVNL. “Any further rise ahead of the Budget should be utilised for profit booking,” he said.

IRFC Gains on Funding and Capex Optimism

IRFC’s sharp rise reflects improving confidence around its funding outlook. As the dedicated financing arm of Indian Railways, IRFC typically benefits when borrowing costs stabilise and capex visibility improves. Expectations of sustained borrowing for large rail projects, coupled with government backing, have strengthened the investment case for the stock after a prolonged phase of consolidation.

RVNL Leads Rally on Execution Bets

RVNL emerged as the standout performer, driven by aggressive buying from both value investors and short-term traders. As an execution-focused infrastructure company, RVNL is closely linked to project awards, order inflows and government spending decisions. After correcting sharply earlier in the year, the stock has attracted interest on expectations of a pre-Budget re-rating and improved execution momentum.

Railway stocks were among the laggards for most of 2025, weighed down by execution concerns, muted earnings growth and profit-booking after a strong multi-year rally. That underperformance has now created room for a rebound, especially as investors hunt for policy-driven themes and relatively undervalued sectors toward year-end.

What Investors Will Watch Next?

While sentiment has clearly improved, analysts caution that the sustainability of the rally will depend on concrete follow-through from the Budget. Investors will closely track signals on railway capital expenditure, safety spending, project execution timelines and funding clarity. Without fresh triggers, the current upmove may remain tactical rather than structural, even as railway stocks return firmly to investor radar.

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