Midcap and Smallcap indices continue to rally.
In the midcap and smallcap space, sector specific momentum is where the money is right now.
Public Sector Units (PSUs) are currently the best performing sector. The rally started from PSU banks and the fire is spreading to other PSUs.
why i wrote recently PSU shares are up And what’s next.
But now… it’s time for railway stocks.
Stocks involved in the Railways segment have been the talk of the town for the past few weeks.
In the past month, some railway stocks have seen astonishing gains of over 50%, while others have still made modest gains.
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My colleague Rahul Shah, co-head of research at Equitymaster, recently explained why railways shares are rallying.
Here is an excerpt from his editorial…
I am sure you must be wondering about Mr. Market’s sudden interest in rail stocks. Why have investors liked them lately?
I believe the interest is not without reason.
If India has to grow at 8%-9% on a sustained basis, we need to invest in all kinds of infrastructure including rail. And if rail infrastructure is given a massive boost, companies in the sector will be among the major beneficiaries.
According to estimates, the country is on track to build more national highways and rail lines in the decade 2015-2025 than it did cumulatively between 1950 and 2015.
Huge capex announcements have already been made and more are on the way.
In fact, the quarterly results for most of these stocks are already showing signs of good times to come.
In my view, another major reason behind the stupendous performance of rail stocks was the attractive valuations at the start of their upward journey. We analysts call these low PE stocks.
You can read the full editorial Here.
Top Gainers…
In the above performance table, Rail Vilas Nigam (RVNL) is on top with 97% in one month and 148% in last six months.
Sector leader Indian Railway Catering and Tourism Corporation (IRCTC) is calm in terms of stock price performance.
Now the question is, will the rise in railway stocks continue?
Unlike other sectoral indices, we do not have Railway Index to analyze the trend and predict its momentum.
Hence we created Market Cap Weighted Railway Index (MWRI) to analyze the trend.
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Taking into account the market cap of each stock, weights are given to form the index.
with a market capitalization of 580 billion, IRCTC leads the weightage with 42% followed by IRFC’s market cap 450 billion, weight 33%.
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On the above daily chart, the Market Cap Weighted Railway Index (MWRI) is showing a bullish trend from June 2022 lows.
After the death cross in May 2022, the index had a bearish trend in line with the market sentiments.
In line with the movement in the benchmark indices, the railway stocks along with the broader market saw movement.
A golden cross – a bullish crossover of the short-term moving average (50 days) over the longer-term moving average (200 days) – is appearing on the charts, confirming a reversal.
This highlights that the current rally is the beginning of a new trend in railway stocks.
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With the golden cross bullish pattern, breakout and retest of consolidation is visible on the charts.
After rallying between July 2022 to September 2022, the index took a breather and broke down in early November.
The breakout, re-test and resumption of the bullish trend shows that the bulls have the upper hand.
What does the chart of individual stocks indicate?
As Rail Vikas Nigam Limited (RVNL) continues to top the performance table, does it still have room to move up?
Let us analyze the price chart of RVNL.
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The stock broke out of the accumulation zone as a horizontal trendline 26 leading to more 40.
The recapture phase from early 2021 till November 2022 has paid off for patient investors as the stock has delivered multibagger returns.
Bulls are grabbing the opportunity for a breakout as volume in the lower panel signals participation in the rally.
High volume on the breakout indicates a bullish outlook.
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Indian Railway Finance Corporation Limited has been an underperformer since its listing in January 2021 25-26.
Patience investors who got allotment in the IPO will now be happy as the stock is trading 34.
The stock broke out of consolidation according to the 89 week Fibonacci time cycle principle.
Same was the case with IRCTC in June 2021, when it was doing business touched a high of 400 1,273.
Can IRFC repeat the IRCTC rally? Only time will tell.
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RITES share price moved out of the consolidation zone along with higher volumes, similar to RVNL and IRFC.
Around 30 months of consolidation and breakout with volume is likely to be prolonged and the rally may move towards higher levels.
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This is another stock from the basket which is witnessing a rally, consolidation and breakout, headed north.
The rise in volumes in Railways shares highlights the eagerness of the investors to accumulate these shares and grab this opportunity.
Disclaimer: This article is for information purposes only. This is not a stock recommendation and should not be treated as such.
This article is syndicated equitymaster.com
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