What next for momentum stocks after reduced majority for NDA coalition

After the election verdict, the government’s allocation for defense budget is likely to remain the same, not posing an orderbook challenge for companies like Mazagaon Dock, say experts.

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26 Aug, 2025 12:21

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The toast of the market till just a couple of days ago, so-called ‘momentum stocks’, are suddenly under pressure on concerns that coalition politics could slow down policy actions. The BJP’s failure to win a majority on its own means the party will be forced to consult alliance partners on key decisions, some market friendly but politically unpalatable.

That triggered a 12-25 percent rout in these stocks on Tuesday after the results were out.

Few dispute that valuations of these stocks had gotten out of whack and were ripe for a correction after a scorching rally over the last year. Many experts, however, feel that major themes like PSUs, infrastructure, defense, and capex are still good investment bets.

The India Election Index, which tracks stocks whose fortunes are closely tied to the NDA coalition returning with a strong mandate, tumbled nearly 13 percent on June 4, compared to a six percent drop in the Nifty. This index includes 50 momentum stocks such as Adani Enterprises, Bank of Baroda, SBI, Cochin Shipyard, and GAIL.

The index rose three percent in Wednesday’s broad market rebound, but near term outlook remains hazy.

"With the NDA forming the government, the fundamental equations remain unchanged,” said Deven Choksey, director of DRChoksey FinServ. “Growth in PSUs, PSBs, and infrastructure will persist, and reforms will continue, albeit possibly at a slower pace," he said.

Rajeev Thakkar, Chief Investment Officer at PPFAS Mutual Fund, sees no significant shift in policymaking. "I don't think anything changes at the policy level. GST will continue, the PLI scheme will run, and domestic defense manufacturing will be encouraged. Infrastructure work will also carry on," Thakkar stated.

Here are what analysts have to say on five such stocks that were battered in trade on June 4.

The stocks have rallied in the last one year as the government’s focus on manufacturing and capital expenditure is expected to boost demand for power.

Demand is projected to reach around 260 GW in FY25, up from 243 GW in FY24. Government schemes have helped power companies pay back their dues to PFC and REC, reducing their NPAs.

After Tuesday’s fall, REC and PFC's valuations are around 1.7x and 1.3x book value respectively. Analysts believe that continued power capex growth will support high credit growth, justifying these valuations.

Defense stocks, including HAL, have surged due to the government's 'Make in India' initiatives and promotion of indigenous defense products for exports. HAL's order backlog of Rs 94,000 crore is three times its FY24 revenues, according to Chirag Shah of ICICI Direct. Revenues are expected to increase significantly with the execution of major contracts like Tejas MK1A aircraft.

The main risk for HAL is its dependency on the government as its sole client. This makes it vulnerable to policy changes. After the recent correction, the stock is currently trading at 39 times its FY25 earnings.

Shipbuilding stocks have soared as budget allocations for the Navy have nearly doubled in the last three years. Mazagaon has an edge over others because it is the only company in the country making submarines and destroyers.

After the election verdict, the government’s allocation for defense budget is likely to remain the same, not posing an orderbook challenge for companies like Mazagaon Dock, say experts. “The defense budget is around Rs 6 lakh crore out of which around Rs 1.7 lakh crore is in defense procurement and the rest is for payment of pensions and salaries. The Rs 1.7 lakh crore is roughly 0.5 percent of the GDP and the government won’t cut this further,” said Vijay Goel research analyst at ICICI Direct.

The risk is that earnings per share growth would be constrained as current orderbook is in peak execution stage, said ICICI Securities in a report. The broker does not expect a meaningful revenue contribution from new orders once current orderbook is exhausted.

Concor shares have rallied almost 40 percent in the last one year, mostly on expectations stake sale by government and dedicated freight corridor (DCF) activity. With 90 percent of the work on DCF now complete, volume growth is expected to increase for Concor. “This will drive better profitability and higher volume growth for the company,” said Ankita Shah of Elara Capital.

The macro story for the run up in most of the railway stocks was the shift from road to rail for cargo transportation.

Shah sees no change in Concor’s structural story because of the election results as business, trade, exports, and imports would continue. “Also, the DFC activity will continue, and the shift from road to rail will happen irrespective of the government in power,” she said.

However, the fact which is unclear is the government’s focus on privatization for Concor. An analyst on the condition of anonymity said, priorities of government on monetization of assets right now are unclear but excluding that Concor’s growth story remains strong.

The stock is currently trading at 22x its FY26 earnings, and the valuations are fairly valued, said Sneha Poddar of Motilal Oswal. “After the correction, it provides an opportunity for investors to enter.”

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