Sensex ends 572 points lower, Nifty below 24,700; Kotak Bank down 7%
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Mint
28 minutes ago
- Mint
Mazagon Dock, Garden Reach to HAL: Defence stocks crash up to 19% in just one month. Time to buy or steer clear?
Defence stocks: After a sizzling rally between April and June in the wake of India's Operation Sindoor and growing order book, defence stocks have taken a back seat lately. The Nifty India Defence index has lost 11% in the last one month, with all 18 index constituents in the red. Many prominent and high-flying defence stocks like Cochin Shipyard, Garden Reach Shipbuilders, Mazagon Dock, Zen Technologies and Paras Defence, among others, have seen a high double-digit decline of 15-19% in their share prices in the last one month. Meanwhile, several other names like Hindustan Aeronautics (HAL), BEML and BEL are down 8-9% during this period. Analysts largely attribute the reversal in trend of the defence stocks to valuation concerns following a massive rally and weakness in the results performance in the ongoing June quarter earnings season. After sharp rallies in many names, investors have started booking profits. The pullback is a natural consolidation, not a capitulation, said Mihir Vora, CIO at TRUST Mutual Fund. According to Ajit Mishra of Religare Broking, this pullback in defence stocks is mainly driven by valuation concerns. The order book is there, which means execution becomes critical for them, said Mishra. Investors often value defence companies on the visibility of earnings over the next 3–5 years, so a strong order book improves confidence in revenue projections. But the order book isn't the only metric; investors also track how well the company executes those orders, as timely execution results in better revenue flows and margin. The order books for most of the defence companies remain strong with more than 3-5 years' worth, and new orders are likely to continue coming in, as per experts. According to data shared by Omniscience Capital, HAL has an order book of ₹ 1,89,300 crore as of FY25. Meanwhile, Nifty 50 company BEL's order book stands at upwards of ₹ 71,500 crore. Mazagon Dock Shipbuilders' order book stands at ₹ 32,000 crore as of FY25, while GRSE, Cochin Shipyard and BDL all have an order pipeline of over ₹ 22,000 crore each. "The long-term budget allocation clearly shows the defence budget is likely to increase at a much faster pace compared to GDP growth over the next 10 years, reaching 3%-4% of GDP. This is still small compared to 5% of GDP being targeted by NATO countries. However, one should not be pulled into the euphoria of growth and should be very focused on the growth vs valuation question as an investor," said Dr Vikas Gupta, CEO & Chief Investment Strategist at OmniScience Capital. While we expect double-digit growth, probably mid to high teens, for many companies for many years, this might still not justify the valuations for some of them, he added. Despite the recent fall, the Nifty India Defence index trades at 54.5x, the P/E ratio. At the same time, the P/E for the Nifty 50 index is 21.8x. Also, execution remains a concern for many companies. If they don't execute despite having order books, eventually, the valuations might turn out to be too high, Gupta opined. Moreover, he also pegs the turnaround in defence names on the not-so-exciting quarterly numbers from most of the companies and 'normalisation' after the extreme positive sentiments post Operation Sindoor and the subsequent interest globally for Indian Defence Products. Mazagon Dock, which reported a massive fall of 35% YoY to ₹ 452 crore in its net profit, saw massive selling today. The defence PSU stock declined by over 5%. Similarly, Bharat Electronics' share price declined over 2% in trade today after the Q1 results announcement yesterday. Zen Technologies, which reported an overall muted set of Q1FY26 numbers as a slowdown in OI momentum persists for a fifth quarter in a row, saw a target price cut by Nuvama to ₹ 1800 from ₹ 2,170 earlier. The company's revenue plunged 56% and PAT halved to ₹ 37.1 crore. Mishra of Religare Broking doesn't see any signs of reversal in the defence pack and said that there is a possibility that defence stocks would continue to be under pressure. "There could be intermediate bounds every now and then, but the trend looks sideways in many cases. As of now, one should not jump into a trade. Short-term investors should refrain from any aggressive buying, Mishra opined. However, long-term investors can selectively start accumulating quality names, he said. HAL, BDL and BEL are among the top stocks that Mihsra recommended. Vora of TRUST MF said that the long-term fundamentals — rising defence budgets, dual-use platform opportunities, and improving export arcs — remain intact for defence stocks, making stock selection critical now. He advised picking stocks with strong balance sheets, clear execution histories, and pipeline visibility. Meanwhile, Gupta of Omniscience Capital opined that investors should keep in mind that there are other dimensions of modern defence beyond the weapons, arms and ammunition. "In the modern geo-strategic defence playbook, key resources, oil & gas, critical and strategic minerals (including rare earth metals), sea lanes and merchandise routes and their security, presence in strategic ports or locations, economic warfare, and other similar assets play a strategic role and one should re-architect their defence portfolio for the long term to take exposure to these through undervalued stocks," he said. Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
Economic Times
an hour ago
- Economic Times
Shouldn't worry about 1-2% decline at index level, all this is temporary: Deepak Shenoy
Deepak Shenoy, Founder & CEO, Capitalmind MF, says despite market dips driven by financial sector concerns, fluctuating government spending, and initial job losses from new technologies, the economy appears fundamentally sound. While acknowledging short-term anxieties, Shenoy anticipates a market recovery as these temporary issues subside and government spending resumes. The underlying economy's strength should ultimately be reflected in market performance. ADVERTISEMENT What are you making of mayhem that we have seen in the market recently because key support levels have been broken on an intraday basis on consecutive days. Any scope of a recovery now? Deepak Shenoy: There is always scope of recovery, no matter what. One of the things that is probably weighing in right now is the lack of a deal with the US. Europe's deal with the US is also hanging while Japan and a few other countries have made deals. So, there is a lot happening and it is generally very good. What we call volatility is like 500 points in the Nifty here and there, that is just like 2%. If we do not move this much, where will we go? Honestly 1%, 2% is not a big deal on the index level. Of course, some stocks are reacting to earnings, some stocks are reacting to generally low credit growth overall, though to be fair, the economy seems to be growing quite decently. We will get numbers at the end of August about GDP, but in general, I do not feel that the economy is meaningfully in trouble or any of that sort. The results seem quite okay other than from some of the financials in the sector and even there, there is a good and bad. Overall, we are not seeing miserable results in that sense, but we do see some elements that are concerning whether it is government flow in defence orders, changes in the infrastructure story not panning out quite as much as we thought, and while some of the other areas around it does cause a short-term risk or a short-term fear level. However, I do not see this as long-term. All of these things will go away. The government will spend, they have to, and even the concerns around jobs will recede. Every new technology creates jobs and takes away jobs, and usually takes away jobs before it creates jobs. It is just a part of the game. We have seen this 20 years ago and we will probably see it now as well. I do not think the numbers are meaningful. Although numbers like 12,000 (job cuts by TCS) sound huge, it is on the back of a six lakh workforce, so again, small single digits overall. So, yes, there are fears, maybe some of it is driving down markets in terms of sentiment, but once some of these go away, we should see the markets recover somewhat and reflect the underlying economy a little more. Let us talk about the banks' earnings. Yes, there is the good and the bad, but the unfortunate part is that the good is few. ICICI Bank and HDFC to some degree are at a dominant position and then there are the rest. From Kotak and Axis we heard that there is a problem in the MFI segment, Kotak especially. The MFI segment for them is minuscule, and for them to come out with the commentary that they have, does it indicate some problem when it comes to unsecured lending and it is not going to bottom out soon? Deepak Shenoy: Honestly, that has been a long time coming. Early last year, RBI started saying that they want to curtail NBFC lending to the unsecured sector and then downstream into banks as well. One of the problems that we have seen in general is when you are very harsh on one sector and say I want to stop all lending, it is not only the bad borrowing that goes out the window; the good one also goes. What happens is banks and NBFCs start placing a lot of restrictions, and increase interest rates. Interest rates have gone up and we have not seen a major cut in the interest rates for even unsecured loans and therefore, we are not getting good borrowers back into the system. ADVERTISEMENT Then, if there are an increasing number of borrowers who are in some kind of stress, the less stressed people are choosing to repay their loans and not borrowing anymore because banks have increased requirements, made it onerous for people to apply because RBI was strict, and so obviously the share of your bad loans will go up. They are being fair in saying that there is stress but RBI has removed a lot of the harsher mechanisms and have eased up on the regulations a little bit. Secondly, it takes time for some of these things to seep back into the system. So, borrowing even by corporates is not going up. The corporates are going to bond markets, getting better rates from there. Some of the SMEs are choosing to repay loans even though it may hurt their ROEs. All of these are signs that the banking system perhaps has gotten a little more strict than it should and they should ease up. If banks wanted, they could increase lending by reducing their rates. I do not know why they are not doing that. ADVERTISEMENT They are all quoting credit costs as if just because they have some bad borrowers, they have to charge everybody higher interest rates. But that does not sound altogether sane. You do need to reduce interest rates for people to borrow better and for better borrowers to come into the system. At this point, banks have themselves to blame to a large extent and it is not that all banks are bad. Some people are doing well in this market and you will have to have some of the bigger banks take the lead in cutting rates for borrowers. (You can now subscribe to our ETMarkets WhatsApp channel)
Time of India
an hour ago
- Time of India
Shouldn't worry about 1-2% decline at index level, all this is temporary: Deepak Shenoy
Deepak Shenoy , Founder & CEO, Capitalmind MF , says despite market dips driven by financial sector concerns , fluctuating government spending, and initial job losses from new technologies, the economy appears fundamentally sound. While acknowledging short-term anxieties, Shenoy anticipates a market recovery as these temporary issues subside and government spending resumes. The underlying economy's strength should ultimately be reflected in market performance. What are you making of mayhem that we have seen in the market recently because key support levels have been broken on an intraday basis on consecutive days. Any scope of a recovery now? Deepak Shenoy: There is always scope of recovery, no matter what. One of the things that is probably weighing in right now is the lack of a deal with the US. Europe's deal with the US is also hanging while Japan and a few other countries have made deals. So, there is a lot happening and it is generally very good. What we call volatility is like 500 points in the Nifty here and there, that is just like 2%. If we do not move this much, where will we go? 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Of course, some stocks are reacting to earnings, some stocks are reacting to generally low credit growth overall, though to be fair, the economy seems to be growing quite decently. We will get numbers at the end of August about GDP, but in general, I do not feel that the economy is meaningfully in trouble or any of that sort. The results seem quite okay other than from some of the financials in the sector and even there, there is a good and bad. Overall, we are not seeing miserable results in that sense, but we do see some elements that are concerning whether it is government flow in defence orders, changes in the infrastructure story not panning out quite as much as we thought, and while some of the other areas around it does cause a short-term risk or a short-term fear level. However, I do not see this as long-term. All of these things will go away. The government will spend, they have to, and even the concerns around jobs will recede. Every new technology creates jobs and takes away jobs, and usually takes away jobs before it creates jobs. It is just a part of the game. We have seen this 20 years ago and we will probably see it now as well. I do not think the numbers are meaningful. Although numbers like 12,000 (job cuts by TCS) sound huge, it is on the back of a six lakh workforce, so again, small single digits overall. So, yes, there are fears, maybe some of it is driving down markets in terms of sentiment, but once some of these go away, we should see the markets recover somewhat and reflect the underlying economy a little more. Live Events You Might Also Like: Era of multilaterals over; in this era of bilaterals, India will be counted: Ashish Chauhan Let us talk about the banks' earnings. Yes, there is the good and the bad, but the unfortunate part is that the good is few. ICICI Bank and HDFC to some degree are at a dominant position and then there are the rest. From Kotak and Axis we heard that there is a problem in the MFI segment, Kotak especially. The MFI segment for them is minuscule, and for them to come out with the commentary that they have, does it indicate some problem when it comes to unsecured lending and it is not going to bottom out soon? Deepak Shenoy: Honestly, that has been a long time coming. Early last year, RBI started saying that they want to curtail NBFC lending to the unsecured sector and then downstream into banks as well. One of the problems that we have seen in general is when you are very harsh on one sector and say I want to stop all lending, it is not only the bad borrowing that goes out the window; the good one also goes. What happens is banks and NBFCs start placing a lot of restrictions, and increase interest rates. Interest rates have gone up and we have not seen a major cut in the interest rates for even unsecured loans and therefore, we are not getting good borrowers back into the system. Then, if there are an increasing number of borrowers who are in some kind of stress, the less stressed people are choosing to repay their loans and not borrowing anymore because banks have increased requirements, made it onerous for people to apply because RBI was strict, and so obviously the share of your bad loans will go up. They are being fair in saying that there is stress but RBI has removed a lot of the harsher mechanisms and have eased up on the regulations a little bit. Secondly, it takes time for some of these things to seep back into the system. So, borrowing even by corporates is not going up. The corporates are going to bond markets, getting better rates from there. Some of the SMEs are choosing to repay loans even though it may hurt their ROEs. All of these are signs that the banking system perhaps has gotten a little more strict than it should and they should ease up. If banks wanted, they could increase lending by reducing their rates. I do not know why they are not doing that. They are all quoting credit costs as if just because they have some bad borrowers, they have to charge everybody higher interest rates. But that does not sound altogether sane. You do need to reduce interest rates for people to borrow better and for better borrowers to come into the system. At this point, banks have themselves to blame to a large extent and it is not that all banks are bad. Some people are doing well in this market and you will have to have some of the bigger banks take the lead in cutting rates for borrowers. You Might Also Like: Market consolidating now, poised for upswing in H2: Sachin Shah
