Railway stocks continued their downward spiral on Wednesday as brokerages expect a correction in the overvalued sector after an unexpected election verdict. 

What Happened: Railway stocks continued their decline on Wednesday as the Bharatiya Janata Party failed to get a mandate on its own in the recently concluded Lok Sabha election.

Railway stocks had shot up on Monday as exit polls predicted a strong mandate for the government, catapulting the stocks on hopes of policy continuity in the railway sector. 

Analysts’ Views: With the current verdict, analysts said sectors like railway, which are now overvalued, might see correction until risk-reward becomes favourable. 

Motilal Oswal said sectors with over-heated valuations and recent sharp outperformance such as industrials, railways, defence and public sector firms may see more moderation in valuations before they become attractive again from the risk-reward perspective.

Kotak Institutional Equities said the market's investment stance towards  "narrative stocks" (capital goods, electric utilities and PSUs) has changed. These stocks have rallied sharply in last 12-15 months and have large downside to their fundamental fair values, it said. The brokerage also said these stocks trade at “rich” to “bubble” values. 

Price Action: Most railway stocks were trading down 1-5% on Wednesday. 

RVNL shares traded down 5.06% at ₹333.70

IRFC shares traded down 1.94% at ₹161.75.

RITES shares traded 5.25% down at ₹591.65.

IRCON shares traded down 3.73% at ₹228.45.

IRCTC shares traded down 3.74% at ₹877.95.

Titagarh Rail Systems shares traded down 12.55% at ₹1,046.95.

Jupiter Wagons shares traded down 3.41% at ₹507.00.

Texmaco Rail shares traded down 1.19% at ₹169.85.