Defence PSU Stocks Drop Up to 45%: Is It Time to Buy?

Defence PSU Stocks Face Major Decline

Indian public sector unit (PSU) stocks, which saw a big surge in the first half of this year, have not escaped the recent market downturn. Although there was some recovery on Tuesday, many of these defence stocks are now trading at their lowest levels in several months.

Defence PSU stocks are at levels not seen in the past six months. While the overall market has seen gains, with indices hitting record highs, defence PSU stocks have struggled and continued to decline. This latest sell-off has worsened the situation for these stocks.

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Sharp Declines in Defence Stocks

For example, shares of Cochin Shipyard are now 45% lower than their all-time high of ₹2,979 in July. The stock fell sharply by 28% in August and then dropped another 7.75% in September, now trading at ₹1,643—its lowest in six months.

Similarly, Garden Reach Shipbuilders & Engineers is down 41% from its peak, while Mazagon Dock Shipbuilders has dropped by 30.36%, hitting a four-month low. Other defence stocks like Bharat Dynamics, Bharat Electronics, Hindustan Aeronautics, and BEML have also fallen by as much as 36% from their recent highs.

What Led to the Decline?

Analysts had previously warned that defence stocks were overvalued. The rally in the first half of the year was driven by consistent order wins and the formation of a BJP-led NDA government, which reassured investors of stable policies and growth potential.

Should You Buy Now?

Given the recent drops, analysts are not expecting a quick recovery for these stocks. Many are advising caution and suggesting that investors avoid trying to buy at the bottom.

Aman Soni, Head of Operations at Prudent Equity, noted that significant declines like this are not unusual and often happen due to profit-taking by investors. He pointed out that the defence sector has had high valuations for a while, and a correction was expected.

Soni warned that it might take years for some stocks to return to their previous highs and suggested a more strategic investment approach. He cautioned that in every bull market, today’s top performers might not be the best choices tomorrow. New investors should be careful not to fall for the recency bias of investing in overvalued assets.

He added, “Even experienced fund managers are struggling to justify the current valuations in the defence sector. While the recent decline may tempt some to invest at these lower levels, it’s important to proceed with caution.”