HAL, BEL, Mazagon, Cochin Shipyards other Multibagger Defence stocks see up to 24% correction in a month . Buy or Sell?

Stock Market Today: Hindustan Aeronautics Ltd (HAL), Bharat Electronics Ltd (BEL), Cochin Shipyards , Mazagon Dock Shipbuilders, Garden Reach Shipbuilders & Engineers Ltd share price have corrected by up to 24% in last one month.

The correction in share prices is despite strong Q1 performance by the Defence sector companies as Hindustan Aeronautics Ltd (HAL), Bharat Electronics Ltd (BEL), Cochin Shipyards , Mazagon Dock Shipbuilders, Garden Reach Shipbuilders & Engineers Ltd among others.

Nifty Defence index corrects 17% from July Highs

Nifty Defense Index (NDI) is down more than 17% from its July-24 peak, but that is a small correction relative to the return of 112% in the last one year.

The Nifty Defence Index stocks report strong Q1 show

The Nifty Defence index constituents on an aggregate reported 65% profit growth during Q1, a continuation of strong 39% profit growth in FY24, as per Axis Securities data. However Axis analysts add that the Defence is a lumpy business and extrapolation of quarterly performance (especially Q1) has low justification. Axis has made scatter plots and scored the Nifty Defence Index stocks on consensus FY26 Price to Earnings versus FY24-26 Earnings per share CAGR versus FY26 RoE (Return on Equity)

Among mid-caps, Paras Defense screened out as the least attractive and Zen Technologies screened out as the most attractive as per Axis Securities. Among large caps, HAL followed by BHEL screened out as the least attractive and Mazagon Docks screened out as the most attractive.

Stock valuations a concern: Order book remains promising

Sunil Damania, Chief Investment Officer, MojoPMS

The business outlook for defence remains strong due to significant untapped demand. In addition to robust domestic demand, India plans to increase exports of defence products, which could drive substantial growth for companies in these sectors. However, the market has already factored in much of the positive news, as reflected in current valuations, said Sunil Damania, Chief Investment Officer, MojoPMS

Despite recent price corrections, many defence stocks trade at high valuations, added Damania. Given this, Damania believes the risk-reward profile for many stocks in the defence and railway sectors is not particularly favorable. Therefore, a selective, stock-specific approach is recommended for investments in these two sectors as per Damaia.

In markets, it's often said that we invest where the government is investing and Anchal Khasal- Research Analyst at Green Portfolio PMS also said that, we firmly believe in this.

If one looks at recent years, sectors like Defense, Renewable Energy, Infrastructure have flared pretty well, some even delivering multifold returns. Although contrary to expectations, we did not see any specific allocations to sectors like Defence, the companies have enough order books to execute on, indicating a strong outlook. said Khasal. Investors should keep an eye on the fundamentals and valuations of the companies and the ability to execute those orders on time. Given the rally, Khasal suggests diversifying the capital amongst various sectors and refrain from putting all eggs in one basket.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions

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