HAL, BEL, Mazagon, and Cochin Shipyards: Multibagger Defence Stocks Plunge 24% in a Month—Time to Buy or Sell?

In the past month, defence stocks like Hindustan Aeronautics Ltd (HAL), Bharat Electronics Ltd (BEL), Cochin Shipyards, Mazagon Dock Shipbuilders, and Garden Reach Shipbuilders & Engineers Ltd have seen their share prices drop by up to 24%. This decline comes despite strong first-quarter performance from these companies.

Nifty Defence Index Drops 17%

The Nifty Defence Index (NDI) has fallen more than 17% from its peak in July 2024. However, this drop is small compared to the index’s 112% gain over the past year.

Strong Q1 Performance

Defence sector companies within the Nifty Defence Index reported a 65% profit growth in the first quarter, building on a 39% profit growth in FY24, according to data from Axis Securities. However, Axis analysts caution that the defence business can be inconsistent, and predicting future performance based on one quarter’s results can be misleading.

Among mid-cap stocks, Paras Defence was identified as less attractive, while Zen Technologies was seen as more promising. Among large caps, HAL and BHEL were considered less attractive, with Mazagon Docks standing out as the most promising.

Valuation Concerns

Sunil Damania, Chief Investment Officer at MojoPMS, believes the outlook for the defence sector remains strong due to high demand. In addition to domestic demand, India’s plans to increase defence exports could further drive growth. However, Damania notes that many defence stocks are currently trading at high valuations, which may limit their potential upside. He suggests that investors take a selective, stock-specific approach when considering investments in the defence and railway sectors.

Expert Advice

Anchal Khasal, Research Analyst at Green Portfolio PMS, advises investors to focus on fundamentals and valuations when considering defence stocks. While the sector has performed well in recent years, Khasal suggests that investors diversify their portfolios across various sectors to avoid overexposure to any single area.