Why IRFC Share Price is Rising

The Indian stock market has seen two big winners in the past year: defence and railways.

Fuelled by the 2023 Union Budget's emphasis on railway infrastructure, railway stocks experienced a phenomenal rise, with many witnessing gains between a staggering 200% and 300% throughout 2023.

However, the new year ushered in a different story. Mirroring a broader market correction in early March, railway stocks have been on a sharp downward slope.

Investors who were once celebrating meteoric rises are now facing the reality of significant corrections. Yet, amidst this industry-wide pullback, a single stock stands out - IRFC.

Bucking the trend, IRFC defied the market blues with a surprising 5% jump today.

Here's what is propelling IRFC's impressive rise.

#1 Nifty Next 50 Addition

The Nifty 50 index and other indices are all set to undergo a rejig this week as part of the periodic review conducted by the Index Maintenance Sub-Committee (Equity) of NSE Indices.

Various stocks which are constituents of their respective indices will be removed from their index and will be replaced with other stocks.

Notably, Indian Railway Finance Corporation Ltd (IRFC) is among the stocks affected.

IRFC is set to enter the Nifty Next50 index alongside four other stocks: Adani Power, Jio Financial Services Ltd, Power Finance Corporation, and REC Ltd. Conversely, the Nifty Next 50 will see the exclusion of five stocks: Adani Wilmar Ltd, Muthoot Finance, PI Industries, Procter & Gamble Hygiene & Health Care, and Shriram Finance.

This transition of IRFC from the Nifty Midcap100 to the Nifty Next50 has led to a surge in the stock price.

The reshuffle is scheduled for 27 March, with changes taking effect from 28 March. Following this update, IRFC shares demonstrated a strong buying momentum, climbing around 4% to reach a day's high at Rs 147.3. Notably, IRFC shares have shown consistent gains over the past three days.

#2 Strong Growth Prospects

Apart from the rumours about potential fundraising, IRFC shares are rallying owing to robust growth prospects.

The government recently announced a massive investment of around Rs 7 trillion for the development of rail infrastructure. This move will primarily benefit railway PSUs like IRFC.

IRFC's principal business is to borrow funds from the financial markets to finance the acquisition/creation of assets, which are then leased out to the Indian Railways.

This massive capital-intensive project by the government will create a substantial funding requirement for the Indian Railways. IRFC, established as its dedicated financing arm, is perfectly positioned to benefit.

Analysts are expecting the company to continue reporting good numbers in future quarters as well as given the government's focus on the sector, which will need massive capital infusion.

What Next?

In the coming years, IRFC is poised to benefit significantly from India's burgeoning railway sector.

The railway ministry has sought the cabinet's approval for a Rs 5.25 trillion investment program during fiscal years 2024-31.

This augmented allocation will provide a renewed impetus to enhance freight movement across the national transportation network.

Recognising the pivotal role of the railway networks, 90% of raw materials are transported via rail. Leveraging this vital artery, the railways have set their sights on a remarkable trajectory.

While they transported 1,210 MT (million tonnes) of the total freight basket of 4,700 MT until the close of 2019, their ambitious plan envisions the loading of 2,024 MT by 2024 from an estimated total freight volume of 6,400 mt.

This dynamic landscape forms a fertile ground for IRFC's growth. The railway sector in India is set to flourish at an impressive compound annual growth rate (CAGR) of 7.5% between 2022 and 2027.

This growth trajectory is set to fuel IRFC's financial prospects, riding on the increasing demand for funding in this expanding sector.

IRFC plans to diversify its financing portfolio in future. This evolution will encompass new dimensions of railway projects, notably dedicated freight corridors, high-speed rail initiatives, and the development of smart railways.

How IRFC shares have performed recently

IRFC shares have given multibagger return over 463% in the past year. Over the three months, the company's shares have rallied over 49%.

IRFC touched its 52-week high of Rs 192.8 on 23 January 2024 while it touched a 52-week low of Rs 25.4 on 28 March 2023.

About IRFC

Indian Railway Finance Corp Ltd is engaged in the business of borrowing funds from the financial markets to finance the acquisition/creation of assets which are then leased out to the Indian Railways or any entity under the Ministry of Railways.

Its only operating segment being leasing and finance. The company generates maximum revenue from lease income.

Its sole objective is to raise money from the debt capital markets to part-finance the plan outlay of Indian Railways.

The money so made available is used predominantly for acquisition of new rolling stock assets to be leased to Indian Railways or developing railway infrastructure.

For more details, see the IRFC company fact sheet and quarterly results.

For a sector overview, read our finance sector report.

You can also compare IRFC with its peers:

IRFC vs REC

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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