Business

Defense sector companies’ stocks are depleted

NEW DELHI NEW DELHI: Defence stocks, one of the most sought-after assets in the recent multi-year bull run, have come under selling pressure, with most components falling 20-30% from their July 2024 highs as the latest reported earnings have been unable to justify their skyrocketing valuations. Market analysts believe the short-term party may be over due to disappointing earnings and valuations.

Prashant Tapase, Senior Vice President (Research), Mehta Equities, said, “Extremely stretched valuations were a matter of concern as price-to-earnings multiples of many defence companies started trading higher than the five-year average earnings multiple and disappointing first quarter earnings further fuelled corrections.” Tapase said there is still room open for some more price corrections based on fundamentals. However, he also added that long-term investors need not worry as the outlook remains optimistic given the government’s focus on defence as a strategic sector for domestic needs as well as focus on export opportunities.

Following the push for localisation, increased budgetary allocations, rise in domestic orders and expansion in global markets, stocks of defence companies have delivered stellar returns for investors. However, the first quarter earnings of these companies have failed to impress investors. For instance, Hindustan Aeronautics shares have risen by 1,375% in the last 5 years, while Bharat Electronics Limited has gained nearly 800%.

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