Railway and defence stocks mirroring the overall negative trend are down sharply in Monday's trade (August 5, 2024). But what is weighing here is the valuation concern. At the last count, from the railway pack, Ircon International., IRCTC, Railtel Corporation and RVNL traded with a cut of up to 7 per cent. On the other hand, defence stocks including BEL, Paras Defence, HAL were down up to 5 per cent. 

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G. Chokkalingam- Founder-Equinomics said that most defence and railways stocks already played successfully. We do not have valuation comfort in any of listed stocks in these two segments. he added.

Atul Parakh, CEO of Bigul pointed out that railways and defence are currently supported by good market optimism and expenditure plans by the government but they also face hurdles due to high valuations and economic uncertainty. Investors are advised to stay informed about the broader economic trends in these sectors and take action accordingly.

Suman Bannerjee, CIO, Hedonova is of the view that defence and railway stocks have surged to multi-year highs driven by robust order inflows and positive market sentiment. However, potential corrections in these sectors are anticipated as attention pivots towards underperforming areas poised for recovery. The upcoming budget's increased allocations to railways and power could spur infrastructure developments in roads, airports, seaports, waterways, and logistics. In a falling market, sectors that offer value include healthcare, utilities, consumer staples, and financial services, with a projected 15-22% upside amidst the market's record highs.

 Rajesh Sinha Sr. Research Analyst said that over the last 2-3 years, Railway and Defence stocks have given robust return mainly led by government emphasis on both the sectors. Increased capital expenditure in railways to make it more safe and in defence to make India Atmanirbhar in Defense and increase export to other countries. The formation of the BJP-led NDA government has further fueled the rally in the railways and defence stocks on the anticipation of political stability and policy continuity. However, the lack of any announcement in the recent budget presented by the Finance Minister on 23rd July 2024 on Defence or Railway has broken the rally in these two sector stocks, he added.

Sinha despite this is bullish on defence and railways stocks due to the decadal opportunity in defence exports and indigenization and the growing shift to the private sector in the railway supply chain.

The expert said that the revolutionary steps taken by the government to establish a robust domestic defence ecosystem, a positive indigenisation list for over 400 defence items to boost domestic production and capital outley of Rs.8.3tn planned by the Government of India (GoI) over the next few years for equipment to be procured from domestic defence players is expected to benefit most of the defence stocks going ahead. While capital expenditure under National Rail Plan of Rs.9.2tn during FY26-31E, up from Rs.5.8tn during FY21-26E, including the procurement of Vande Bharat trains, metro capex and initiatives to increase freight market share to 45% from 27% by 2030 is expected to help most of the railways stocks.

We believe Hindustan Aeronautics, Bharat Electronics, Bharat Dynamics, IRCTC and RVNL, etc. are well placed in these two sectors to attract investors attention over the long term prospective, he added.