Indian Railway Finance Corporation (NSE: IRFC) shares are up 5% today as part of the general rise across the railway sector in India this past month. As we say, this seems to be part of a general trend, varied railway shares have been rising recently. Trade was also substantial, this is not a move based on thin liquidity. Nearly 5 crore shares traded.
However, it's worth having a look at the background here. The Indian Railways are really an arm of government. As well as being the country's largest employer. The two go together - the Indian railways are grossly inefficient. IRFC is a part of this system - the government owns 86% of the shares. IRFC was set up in order to bring some size and efficiency to the financing of the railway system. By having the one centralised body dealing with bond and equity markets perhaps it would be possible to have more efficient financing? The reason for an issuance of stock in such a body is to provide visibility on that efficiency. A public company - publicly quoted that is - has to prepare accounts on a more open basis than government itself does.
Indian Railway Finance Corporation share price from Google.
As to why the excitement in the shares this all seems to be an entirely sectoral idea. Share prices across the sector are rising and when that happens we've got to at least suspect a sectoral cause. That, here, seems to be that the Indian government has finally bitten the bullet and decided to get serious in upgrading the railways. As with many government run things around the world investment has been lacking over the decades. Not aided by the way in which ticket prices are politically, not economically, determined.
More specifically, there's an expansion of the Vande Bharat express trains system. This is more than it might seem for the economics of the railway system. Yes, faster trains, more investment, that's good. But the political agreement also seems to be that these faster trains will not be constrained as to ticket price in the same way that the legacy system is. In other words, we might be getting some modern economics to go along with modern trains. An interesting change and one that's obviously good for the sectoral stocks.