RVNL share price suffers a harsh reversal: buy the dip?

The Rail Vikas Nigam (RVNL) share price has been in a spectacular bull run since going public. It soared to a record high of ₹640 this week as investors waited for the country’s budget and its investments in the rail industry.

RVNL has soared by over 2,800% since 2019, beating the Nifty 50 and BSE Sensex, which have risen by less than 150% in this period. It has also beaten other Indian railway stocks like IRFC and IRCON, which have risen by 900% and 800%, respectively. 

In local currency terms, RVNL has beaten American indices like the Nasdaq 100 and S&P 500 and blue-chip companies like Microsoft and Alphabet.

RVNL vs Nifty 50 vs Sensex vs IRCON vs IRFC stocks

India’s rail growth

The RVNL share price has done well because of the recent investments in India’s rail industry as the country seeks to become the third-biggest economy in the world after the US and China. It also has ambitions of becoming a developed country by 2050.

As a result, the government has been spending big on infrastructural projects in the past few years. It has built new airports, thousands of miles of new road projects, and thousands in rail networks.

On Tuesday, the government said that it would spend a record ₹11.1 trillion or $132.5 billion in new infrastructure projects or 3.4% of the total GDP. The figure was relatively unchanged from what the government spent last year. 

As shown below, the federal government spending on infrastructure has been in a steady increase from above ₹2.3 trillion in 2016 to over ₹11.1 trillion. The figure has more than doubled in the past three years. 

Most of these funds are expected to go to the rail industry, which the government believes is integral for its ambition to become a leading economy globally. Railway is always a better and cheaper mode of transport than flying and road.

Therefore, the RVNL share price dropped on Wednesday because the government did not boost its infrastructure spending as many analysts were expecting.

RVNL growth has continued

The RVNL share price has soared as the company’s fundamentals have continued improving. Data shows that its annual revenue moved from ₹14,530 crore in the 2019-20 financial year to ₹15,403 crore in the next financial year. The company made ₹19,381 crore in the 2022-2023 and ₹21,732 crore in the last financial year.

These results have grown profitably as its profit after tax rose from ₹790 crore in 2019 to over ₹1,640 crore in the last financial year. This growth happened as it continued receiving huge infrastructure orders from the government.

For example, the company is now doubling the 203 km Raipur-Titlagarth railway project, building the Manamadurai-Rameswaram bridge, and building the Rishikesh-Karnaprayag line. Its other projects are the Lucknow-Pilibhit’s gauge conversion and doubling of the Mathura-Jhansi line. 

Additionally, the company has continued to attract more infrastructure deals in India and other countries. It recently signed an MoU for a rail project in Nepal and is working on other international projects. Its goal is to become a global railway company and take on Chinese companies that have dominated the industry.

RVNL has reached more deals recently. As shown below, it has reached deals with billions of rupee since March this year.

Outlook for the RVNL share price

RVNL is not covered widely by Indian and Wall Street analysts. Data shows that it is followed by 2 analysts who have a hold rating on the stock. The consensus view is that its stock should be trading at ₹268, much lower than the current ₹590. This view suggests that analysts believe that it has become severely overvalued.

RVNL share price forecast

RVNL chart by TradingView

Turning to the weekly chart, we see that the RVNL stock price has been in a spectacular bull run since going public in 2019. Most recently, it jumped for five straight weeks as investors waited for the country’s annual budget. 

The stock is now in its second consecutive weekly losses. These losses continued after the budget remained steady and the government increased some taxes. Also, the company and its contractor, Megha Engineering, have been accused of illegally dumping muck in waterbodies. 

The RVNL share price has remained above all moving averages, meaning that bulls are still in control. However, it has formed a small evening star chart pattern, a popular bearish sign. 

The Relative Strength Index (RSI), Money Flow Index (MFI) and the Stochastic Oscillator have all moved to the overbought level and are pointing downwards. 

Therefore, the RVNL shares will likely continue falling in the next few days as some investors take profits. This retreat could see it retest the key support at ₹550. In the long-term, however, and based on trend-following principles, the stock will likely continue rising as buyers target the next point at ₹650.

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