As defence stocks have seen their market prices more than halve from record highs, analysts at JPMorgan believe that the recent correction have made these counters more appealing from a valuation standpoint.
JPMorgan analysts remain confident in the structural growth story of defence stocks, emphasising that India's defence capex and domestic manufacturing push are long-term trends rather than short-term fluctuations. They argued that concerns over budget constraints or geopolitical developments are exaggerated.
"We maintain our overweight stance on Bharat Electronics Limited (BEL) and Hindustan Aeronautics Limited (HAL), with BEL as our preferred pick. Strengthening defence ties with the US will be a net positive for the domestic industry," the brokerage firm noted.
In the recently concluded third quarter, analysts at Choice Broking highlighted that defence public sector undertakings (PSUs) significantly outperformed their private-sector counterparts across key financial indicators.
According to the brokerage, defence PSUs posted a strong 25.3 percent year-on-year revenue growth, while EBITDA margins expanded by 40 basis points to 32.4 percent. Net profit also surged 28.7 percent, despite ongoing global conflicts causing supply chain disruptions.
In contrast, private-sector defence companies faced execution delays and supply constraints, which resulted in a lower revenue growth of 7.5 percent and an EBITDA margin contraction of 88.7 basis points on a year-on-year basis in the third quarter.
Defence stocks have seen substantial corrections from their all-time highs. Data Patterns India has been the hardest hit, plunging 57 percent from its peak, followed by Cochin Shipyard, which has dropped 55 percent. Other notable declines include Paras Defence, down 43.8 percent, Bharat Dynamics, which has fallen 43.7 percent, and Astra Microwave Products, down 42 percent.
Looking ahead, analysts at Elara Capital expect order inflows to increase in the March quarter as the government moves to meet its defence capex target for the current fiscal year.
The brokerage further noted that allocations to domestic companies currently account for 75 percent of the total budgeted defence capex. Meanwhile, the Indian Navy’s budget has seen an 18 percent rise from the previous year in the Budget Estimates for the financial year 2025.
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