Cochin Shipyard, Bharat Dynamics and other top defence stocks fall up to 40% from record highs: What should investors do?
Steep valuation concerns still make the pocket expensive, advising a wait and watch strategy on defence stocks.
After the record run in the entire PSU basket, some of the sectors including defence and railways have now shown remarkable correction. Talking specifically about the defence stocks all leading defence stocks have fallen starkly from record highs hit this year.
Defence stocks and the percentage fall from record highs (data as on September 25)
Cochin Shipyard -44%
Bharat Dynamics -40%
Garden Reach -40%
MTAR Tech: -40%
Apollo Micro -36%
BEML: -35%
Paras Defence -33%
Mazagon Dock: -32%
Mishra Dhaka -31%
Ideaforge: -31%
HAL: -26%
DCX Systems: 25%
BEL: -20%
Astra Micro: -17%
So, now as an investor amid the record run on the headline indices, you as an investor may also be eyeing the space after a huge fall as to whether to enter or not after good enough loss in the space.
G. Chokkalingam, founder at Equinomics held that one can wait for 15 per cent to 20 per cent further correction before entering them as their current PEs are still at huge premium to their historical averages.
Defence stocks were overheated in terms of valuations as they had run up a lot, said,Narendra Solanki, Head Fundamental Research - Investment Services, Anand Rathi Shares and Stock Brokers.The sector tailwind is strong and is still growing but it is a gradual and steady long term process. Also the revenues are a bit lumpy and distributed over a long term hence some inherent cyclicality is also there, he added.
The expert reccommends those who already have should continue to hold for long term.
Atul Parakh, CEO of Bigul, meanwhile, noted that the present condition of defence stocks in India shows an equilibrium between opportunities for growth and underlying risks. Certain defence stocks are being watched closely for possible overvaluation concerns. Investors should keep evaluating important financial metrics like return on equity (ROE) and return on invested capital (ROIC). While promising growth prospects exist in the Indian defence industry, investors should be careful when evaluating metrics and external risks.
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