After the unexpected election results for the NDA government, defense stocks took a hit. Foreign brokerage CLSA commented that the high valuations of defense stocks leave little room for mistakes.
CLSA downgraded Bharat Electronics (BEL) from ‘buy’ to ‘outperform’ but raised its target price to Rs 294 from Rs 207, suggesting a 15% upside potential.
The brokerage maintained its ‘outperform’ rating on Hindustan Aeronautics Limited (HAL) with a target price of Rs 4,731 per share.
At 9:50 am, BEL shares were down 4.8% at Rs 243.25 on the NSE, while HAL shares dropped 6.5% to Rs 4,054.15.
Defense stocks soared during Modi’s second term due to the government’s push for indigenizing defense manufacturing under the Atmanirbhar Bharat initiative. However, with the BJP needing allies to form the government, experts believe the focus might shift from growth to welfare initiatives.
Despite this, CLSA expects the government to continue its push for defense indigenization. The government’s efforts have led to a 9% compound annual growth rate (CAGR) in defense spending from FY16-24, which is unlikely to change.
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