Stocks such as Paras Defence, Garden Reach Shipbuilders, Data Patterns, Cochin Shipyard, Mazagon Dock Shipbuilders, and Hindustan Aeronautics saw notable gains. The rise comes as tensions persist at the Line of Control (LoC) following the Pahalgam terror attack, with multiple ceasefire violations reported over the weekend.
In response, India has taken several measures, including suspending the Indus Water Treaty, halting activities at the Wagah Border, and asking Pakistani nationals to leave the country. Defence Minister Rajnath Singh is also set to meet with Prime Minister Narendra Modi today.
The spotlight is also on defence stocks as India and France are set to formally announce the conclusion of the Rs 63,000 crore deal for 26 Rafale-M fighter jets. The first deliveries are expected in approximately three-and-a-half years, with the contract set to be completed within six-and-a-half years.
On the stock front, Paras Defence emerged as the top gainer on the Nifty India Defence index, trading 11.5% higher. Other stocks such as Data Patterns, Cochin Shipyard, and Bharat Dynamics also saw gains of 9.6%, 7%, and 6%, respectively. Hindustan Aeronautics recorded a 5% rise. The Nifty India Defence index surged over 4%.Analysts suggest that companies with robust financials, strong execution capabilities, and alignment with India’s national defence strategy will benefit the most.”We believe that a government effort to indigenous defence manufacturing is likely to bear fruits for the domestic companies over medium to long term,” said Atish Matlawala, Sr Fundamental Analyst at SSJ Finance & Securities.
“We like BEL, Mazagon dock and shipbuilders and Bharat Dynamics Ltd as these companies have strong orderbook, reasonable valuations and more importantly does not depend on foreign collaboration for technology transfer as in the case of HAL,” he said.
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Should you buy defence stocks now?
Analysts say the tensions with Pakistan are temporary and they don’t see any fundamental shift that warrants aggressive fresh buying at this stage. However, investors who entered at lower levels may continue to hold, but new entrants should wait for more attractive entry points or further clarity on developments.
Among the individual stocks, Matlawala likes BEL, Mazagon Dock and Shipbuilders, and Bharat Dynamics for the long run as these companies have strong orderbook, reasonable valuations and more importantly, does not depend on foreign collaboration for technology transfer, as in the case of HAL.
BEL is a leader in defence electronics and radars. It benefits directly from rising investment in surveillance, communication, and electronic warfare systems. Currently, BEL trades at P/E of 43x with EV/EBITDA of 30x.
Meanwhile, in the wake of enhanced situational awareness, intelligence capabilities, and electronic superiority, Paras Defence plays a vital role in force multiplication and threat mitigation in counter-terror and cross-border operations. Currently PARAS trades at P/E of 84x with EV/EBITDA of 48x.
Atul Parakh, CEO of Bigul has a contrarian view. “Current valuations appear more reasonable after the correction, with the sector trading at a slight discount to its recent premium levels.”
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
