IRCTC is the only firm authorized by the Indian Railways to sell bottled water, manage catering services, and sell railway tickets online across all Indian railway stations and trains. As a result, it’s considered a monopoly. A monopoly is one of the few things that investors adore more than life itself.
It’s the chance to corner a market only through government decrees. Investors were ecstatic when the company chose to go public in October 2019 at Rs 320 a share. They couldn’t believe how “inexpensive” it was in comparison to the possibilities it possessed.
The stock also doubled in value on the day of its initial public offering. By October 2021, the stock had risen to about Rs 6,000 per share. IRCTC was in high demand, and everyone wanted a piece of it.
However, there was one issue: government intervention. It was the one thing that had the potential to come back to bite minority stockholders.
IRCTC sent a notification on the 28th of October, after the markets had closed for the day. The Ministry of Railways had requested that IRCTC begin sharing half of its convenience costs — the Rs 20 or so you pay for the ease of ordering tickets online.
On Friday, just moments after the stock market opened, the stock plummeted by 20%.
Convenience fees accounted for only 15–20 percent of IRCTC’s revenue in the past, amounting to roughly Rs 400–500 crores.
This isn’t the first time the government has done something similar. The railways took 20% of the convenience fees in 2014. And in 2015, they increased it to 50%. Then, starting in 2017, they ceased sharing revenue for a short time. However, the writing was on the wall that Railways will seek a share again at some point.
So, what’s the difference now versus then?
People like you and me, on the other hand, were not shareholders back then. We can also punish the stock if we can reward it for all of its potential. People also expressed their displeasure via social media almost immediately.
So, what was the government’s response? It promptly reversed the decision.
Demanding that IRCTC share 50% of convenience fees would only net the Railways roughly Rs 200 crores, give or take. That’s just a small bit of money. IRCTC, on the other hand, lost over Rs 20,000 crores in market value overnight when shareholders opted to penalise the company. As a result, the government lost close to Rs 13,500 crores in equity, which it had only a few days before.
However, by reversing its decision so quickly, the government sent a message to minority shareholders that “we care.”