Cochin Shipyard, HAL, 8 other defence PSU stocks fall up to 30% in a month. Is it time for bottom fishing?

Defence stocks have corrected by up to 30% in the past one month as investors look to book profits after multibagger rallies over the past one-and-half years. As a strategy, investors should stay away from bottom fishing at this time and the decision to invest in this sector should come only when the signs of reversal become apparent, experts recommend.

In the Nifty Defence index, six stocks have seen their price erode in double digits with Cochin Shipyard remaining the top loser in the pack falling by 30% in the last one month. It is followed by Garden Reach Shipbuilders & Engineers and Mazagon Dock Shipbuilders which have declined by 26% and 21%, respectively in the same period.

Others like BEML, Data Patterns (India), Bharat Dynamics, Bharat Electronics, Hindustan Aeronautics (HAL), Paras Defence And Space Technologies and Astra Microwave Products have lost between 19% and 0.20%.


According to the NSE factsheet, the index returns on the quarter-to-date basis stood approximately at negative 5% as on August 30, 2024.


Dr Ravi Singh, Senior Vice President, Retail Research at Religare Broking advises investors against indulging in bottom fishing in these stocks at this time. "Investing should be considered only when there are clear signs of reversal, which are currently absent in most defence stocks. Only a few exceptions show some stability, so it’s better to wait for stronger indications of a recovery before making any moves," he said.

Six out of ten counters delivered multibagger returns in FY24 viz. Cochin Shipyard, Mazagon Dock, BEML, Bharat Electronics, HAL and Astra Microwave between 280% 120%. The highest by Cochin Shipyard (280) while the lowest by 120%. The rest gave double-digit returns up to 83%.

In FY25, so far, four stocks have turned multibaggers. The top performer is Garden Reach Shipbuilders followed by Mazagon dock and Cochin Shipyard with returns of 137%, 128% and 117%. The rest have given returns between 16% and 52%.

Defence stocks have been in a strong bull run for more than a year. The Nifty India Defence Index 1-year returns stand at 115% while the year-to-date returns are at 65%. In terms of weightage, the top three stocks with highest weights are Bharat Electronics (20.22%), HAL (18.23%) and Solar Industries (15.79%).

Solar Industries is a private company which manufactures explosive devices and ammunition.

While, Singh conceded that defence as a sector appeared to be overheated and that one should tread with caution, he sees a case for stable names like HAL, Astra Microwave, Bharat Electronics Limited (BEL) and Paras Defence. In his view, they can take a lead in case of a recovery in overall market conditions.

Based on technical analysis, stocks like Cochin Shipyard, Garden Reach, Mazagon Dock and Data Patterns may continue to face downward pressure, he opined, adding that these names are likely to experience further corrections, so investors should be cautious when considering these stocks.

Analyst Deepak Jasani, Head of Retail Research at HDFC Securities recommends a sell on rise strategy. While technically these stocks may be ripe for a bounce, a lot of investors could take advantage of that rise to trim their positions further, Jasani said. On future prospects, he said that within the defence pack, electronics, tanks, ammunition, drones and anti-drone companies may do well over the long term though their entry timings and price need to be fixed well while recognising that their up moves may be more sedate and not wild.

On Cochin Shipyard, he feels that the profit growth could lag with a good margin notwithstanding the topline visibility. "Shipyard stocks have fallen the most, however this is after they rose the most from the lows of July 22/ May 23. Despite a large order book and expected accretion to it, the street feels that the earnings trajectory could taper off after a strong performance over FY25-FY27," Jasani said.

Also Read: 5 multibaggers from Ashish Kacholia's portfolio log blockbuster Q1 nos, PAT jumps up to 222%

(Data inputs from Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)