Budget 2025: Indian Railways may get funding boost; check key stocks in focus

SUMMARY

Ahead of the Union Budget 2025, investors are focused on the Indian Railways sector, expecting a record-high budget allocation, possibly exceeding ₹3 lakh crore. Experts predict a 15-20% increase in capital expenditure, focusing on network decongestion, new trains, safety systems like Kavach, and modernising infrastructure. However, railway stocks have seen declines due to broader market trends.

Experts anticipate Finance Minister Nirmala Sitharaman to increase capex for Indian Railways by 15-20% to ₹3 lakh crore.

As central government prepares to present the Union Budget on February 1, 2025, investors are closely watching what will happen in the railways sector. Many are hoping for important announcements that could impact the future of railways.

Considering infrastructure has always been a focus area for this government, expectations are rife that the trend will continue this year, and budgetary allocation to the Indian Railways for the financial year 2025-26 may hit record-high levels.

Experts anticipate Finance Minister Nirmala Sitharaman increasing capital expenditure for the railway sector by 15-20% in the upcoming Union Budget 2025, potentially raising the total allocation to over ₹3 lakh crore.

If announced, this will be a significant increase compared to the total allocation to railways in the Union Budget 2024. The railway sector was allocated ₹2.65 lakh crore in the previous Budget, which was up 4% over the outlay for the preceding fiscal.

Notably, the Railway Ministry has already spent 76% of its Budget allocation for FY 2024-25 by January 2025, with the main thrust on capacity augmentation and infrastructure.

Union Budget 2025: Key expectations

One key focus area for the railway sector in the Union Budget 2025 could be decongestion of the Indian Railways network. Finance Minister Nirmala Sitharaman may announce the laying of new tracks, upgradation of existing tracks, and commissioning of upgraded railway stations.

New routes for Vande Bharat and Amrit Bharat Express trains are also expected. Various media reports suggest that 10 Vande Bharat sleeper and 100 Amrit Bharat Express trains will likely be announced in the Budget.

Also, the Mumbai-Ahmedabad High-Speed Rail Corridor, popularly known as the bullet train, may receive higher funding this year to accelerate its completion.

Besides that, the government is likely to focus the most on modernising the railway infrastructure this year to prevent train collisions and derailments.

Currently, the Indian Railways is aggressively rolling out the Kavach safety system. The railway ministry has already spent ₹1,500 crore so far this fiscal as against the allocated budget of ₹1,100 crore for FY 2024-25.

Union Minister Ashwini Vaishnaw had earlier said that the ministry would use the ₹1.08 lakh crore of the Budget 2024 allocation to boost safety. According to the minister, ‘Kavach 4.0' safety system was to get a substantial part of the funds earmarked for safety-related measures.

Kavach is an automatic train protection (ATP) system to prevent collisions and derailments. It uses technology like GPS and Radio Frequency Identification to monitor train movement.

Railway sector observers also expect that a portion of the budgetary allocation for Indian Railways will also go towards acquiring rolling stock like locomotives, wagons, and coaches. This would be critical to improving the Indian Railways' capacity and efficiency.

Key railway stocks in focus ahead of Union Budget 2025

Interestingly, railways stocks have seen a disappointing trend so far in January 2025 ahead of the Union Budget. Shares of companies related to the Indian Railways, from online ticket booking portal IRCTC to BEML, which manufactures coaches and wagons, have all witnessed correction in the 3-13% range so far this month.

Most of this fall can be attributed to the recent broader market sell-off and subdued quarterly earnings of some of the companies. Despite the fall, investors are keeping a close eye on the railway stocks as the sector might see increased allocation in the Union Budget 2025.

*Stock closing price as of January 22; **Recently listed IPO

Indian Railways capex for FY 2024-25

The government in the last Budget increased the budgetary support for the capital expenditure for Indian Railways by 5% to ₹2.52 lakh crore from ₹2.4 lakh crore in the previous financial year. Total capital expenditure was projected at ₹2.65 lakh crore, of which 95% was proposed to be met through budgetary support, 4% from extra-budgetary resources and 1% internal accruals.

Among major capex plans, ₹34,602 crore were allocated to new lines, ₹29,312 crore for doubling of lanes, and ₹50,903 crore for rolling stock and ₹17,652 crore for track renewals. A sum of ₹10,000 crore was earmarked for Rashtirya Rail Sanraksha Kosh and ₹45,000 crore for Railway Safety Fund.

Additional funds were allocated to promote industrial development and infrastructure to support industrial clusters at strategic locations. The Budget also announced a new approach to infra development under the PM GatiShakti mission.

Let’s take a look at how the Railway Ministry has utilised the funds allocated in the previous Budget.

Indian Railways utilises around 90% of capex allocation for FY25

Indian Railways has utilised nearly 76% of the total budgetary outlay in the first nine-months of the current fiscal, a PIB release dated January 8 said citing latest expenditure report.

According to a latest expenditure report of Indian Railways till January 5, 2025, heavy investments have been made in capacity augmentation, aiming to make rail travel a world class experience in India, the PIB release said.

The capex target was expected to be met before the end of the fiscal as more than ₹2 lakh crore have already been spent by the Railway Board.

According to the ministry 136 Vande Bharat trains have been launched, and about 97% electrification of broad gauge has been achieved. Additionally, laying of new lines, gauge conversion, doubling of track, traffic facilities work, investment in PSUs and metropolitan transport have also met through the capex.

The capex expenditure by the Indian Railways has mostly remained focused on capacity enhancement, boosting safety measures, infrastructure modernisation and passenger amenities.

[*As of January 5, 2025]