GRSE, Cochin Shipyard, other defence stocks surge up to 20% on European boost; Nifty Defence up 5%

GRSE, Cochin Shipyard, other defence stocks surge up to 20% amid broad-based recovery; Nifty Defence up 4.5%

Shares of defence and shipping companies, including Garden Reach Shipbuilders & Engineers (GRSE), Cochin Shipyard, and Hindustan Aeronautics Ltd (HAL), rallied up to 20 percent on Wednesday, tracking a broad-based recovery in the domestic equity market and a confluence of positive factors driving the global and domestic defence landscape.

The immediate catalyst appears to be the agreement by German lawmakers to increase infrastructure and defence spending, signaling a concrete step towards bolstering European military capabilities. This development reinforces the broader trend of European rearmament in response to geopolitical tensions, particularly the ongoing war in Ukraine and concerns around regional security.

The Nifty India Defence index surged nearly 6 percent intraday, as investors turned bullish on the sector. Except for IT and FMCG, all major sectors were trading in positive territory on March 19.

Krishna Appala, Sr. Analyst at Capitalmind Research, noted that that European nations are facing challenges in rapidly expanding their own defence production after a period of reduced manufacturing, Indian defence companies are increasingly seen as attractive suppliers, capable of providing equipment at scale and potentially lower cost, as South Korean companies have already demonstrated. This positive sentiment is further amplified by the demonstrated growth in Indian defence exports, which saw a substantial 32.5 percent increase in the last financial year.

"From a fundamental perspective, the rally in defence stocks is underpinned by strong order backlogs and improving revenue visibility for many players. The attractive valuations that emerged after a period of correction are making these stocks appealing for long-term investors. Companies with robust in-house development capabilities and a strong focus on key areas like shipbuilding, artillery, and electronics are particularly well-positioned to capitalize on both domestic and international opportunities. The potential for significant contract wins from both European and other nations, coupled with increasing domestic defence spending, paints a promising picture for the Indian defence sector," Appala noted.

GRSE hit the 20 percent upper circuit at Rs 1,641.35 apiece on the NSE, extending its winning streak to the fourth consecutive session.

Cochin Shipyard also touched a 10 percent upper circuit during intraday trade, reaching Rs 1,474.95 per share, before giving up some gains later in the session.

Among other defence stocks, Hindustan Aeronautics advanced 5.16 percent, while Mazagon Dock Shipbuilders jumped 10.96 percent.

Vikas Gupta, smallcase Manager and Founder of Omniscience Capital further added "the Nifty India Defence Index PE had reached 65 at peak. Even now the PE of the index is 42 or so which is quite high even for high growth companies. We suggest that this is a market for more active participation rather than tracking an index which is overvalued. owever, a lot of the old favorites while down by 20%-40% are still extremely overvalued in our opinion and we would warn investors to be very focused on the overvaluation or undervaluation while investing for the long-term."

The rally in defence stocks comes amid renewed investor interest in the sector, with market sentiment improving across segments.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.