Defence and railway themes rally just beginning, stocks may rise for next 5-7 years: Vijay Kedia

Vijay Kedia

Defence and railways stocks have been on a roll for the past few months. Can the rise continue? Market veteran Vijay Kedia has said the rally in defence and railway stocks is at a nascent stage, and that these stocks may continue to rise over the next five to seven years.

Even though these two themes have been discovered by the markets and are well known among investors, these stocks could still continue to rise, he said. “Ab yeh theme ke baren mein sab ko pata hai, lekin jo mehenga hai woh aur bhi mehenga ho sakta hai (Defence and railway themes are out in the open now, but expensive stocks could get even more expensive),” said Vijay Kedia, in an interview with Moneycontrol on August 29.

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He believes that currently these themes are only at the early stages of take-off and are poised for a good run owing to increasing government capex towards the railways and defence sector.

“One year ago, only a few people had predicted this story to play out well. However, today it is out in the open,” said Kedia. The ace investor believes that at this point, new investors into these stocks would want to latch on and not let go. Thus, the prices of these stocks will continue to rise.

The railways and defence stocks have been rallying recently with shares reporting massive returns over the past six months. Cochin Shipyard Ltd reported a 92.57 percent return, Hindustan Aeronautics Ltd a 51.89 percent and Jupiter Wagons Ltd a 252.15 percent return. The K&R Rail Engineering Ltd stock delivered a 158.99 percent return close to Mazagon Dock Shipbuilders Ltd’s 159.24 percent return over the same period. The Rail Vikas Nigam Ltd and Titagarh Rail Systems Ltd stocks delivered 123.50 percent and 60 percent returns respectively.

Kedia explained the two types of stock corrections: one, in which the share price falls sharply; two, in which the price remains at similar levels, or even a little lower, for a prolonged period of time. He says that a sharp correction is unlikely in the prices of stocks that have been rallying.

“They may face some time corrections or reduce by some 20 to 30 percent; however as the balance sheets support strong growth, the shares will grow. Even if they reduce by a little bit, they will still deliver medium returns,” he said.

Thus, people will stay attached to these themes, Kedia added.