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Time of India
17-07-2025
- Business
- Time of India
₹1,700 Cr Sell-Off: Is India's Defence Boom Overheating?
India's defence stocks are flashing red. Mutual funds have offloaded a massive ₹1,700 crore across top names like Solar Industries, Bharat Forge, Zen Technologies, and more, signaling deep concerns over valuation and execution a 3-month rally of up to 84% post-Operation Sindoor, the sector is now facing a reality check. Even institutional bulls like Kotak AMC and Motilal Oswal are tapping the brakes. So, is the defence dream fading — or just recalibrating?In this video, we break down:Why mutual funds are exitingWhich stocks are under pressureWhat experts like Vikas Khemani and Ambareesh Baliga are warningThe long-term opportunity still intactShould you sell, hold, or SIP into defence now? Let's decode. Show more Show less
Economic Times
16-07-2025
- Business
- Economic Times
Mutual funds cut Rs 1,700 crore exposure in 9 defence stocks. Too expensive to buy or smart exit?
Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Their top picks in the space are BEL and Data Patterns. The multi-billion-dollar boom in defence stocks is showing signs of a slowdown, as mutual funds offloaded a staggering Rs 1,700 crore across nine defence stocks last month — a signal that even the smartest money managers believe valuations have turned dangerously expensive after the post-Operation Sindoor the positive news around increased defence spending following Operation Sindoor , coupled with NATO's defence spending targets creating a double-barrelled opportunity in both domestic and export markets, has now pushed valuations into uncomfortable territory. This has prompted institutional investors to hit the exit selling spree was broad-based, with Solar Industries bearing the brunt with outflows of Rs 952 crore, followed by Zen Technologies at Rs 192 crore and Bharat Forge at Rs 165 crore. GRSE saw selling worth Rs 153 crore, while Cochin Shipyard faced outflows of Rs 120 crore, and Mazagon Dock witnessed exits of Rs 96 crore, according to estimates by Prime Database. Total gross selling stood at approximately Rs 1,713 stark contrast, buying was limited to a meagre Rs 100 crore across seven stocks, including Bharat Dynamics, Unimech, and sell-off has been reflected in share prices, with the Nifty India Defence Index falling around 4% over the past month. GRSE, Astra Microwave, and Cochin Shipyard have reported double-digit losses, while Solar Industries is down 9% and HAL has shed around 3%, underscoring the broad-based nature of the concerns are now front and center, as even the sector's most vocal cheerleaders are beginning to pump the brakes.'We have been avoiding a lot of defence plays... those are the places where we are finding a little bit of overenthusiasm in the marketplace and among market participants,' said Vikas Khemani of Carnelian Asset Management, highlighting the frothy sentiment gripping the caution reflects a broader shift in institutional thinking. "It is not that tomorrow if we find an interesting company where the risk-reward is there, we will be buying those segments also, so I am not making a broad judgment that we will not do anything, but it is just that those are the places where we are finding a little bit of overenthusiasm in the marketplace and market participants," he added, suggesting that selectivity, not blanket avoidance, is the new warning signs are flashing red across the sector, with execution risks emerging as the new worry. Ambareesh Baliga sounded the alarm on what many investors are overlooking: "In fact, I am finding the valuations are a bit expensive at this point of time... the issue would be on delivery, on execution, which not too many people are talking about. They have got huge orders, but how will they execute? I think that is the big issue."Baliga's concerns are particularly acute for the medium term. "The issue is mostly on the defence side of the market because quite a few of them have got order books full for the next six-eight years, and if they are not able to increase their capacity and deliver, that is where the issue would happen," he pointed to HAL as an early warning: "We have already seen that happening in HAL to some extent, that we should see across the other companies." This suggests that the order book visibility that investors have been celebrating could become a liability if companies can't scale up operations to meet recent downgrade of BDL by Motilal Oswal further weighed on sentiment, serving as a wake-up call for investors who had been riding the momentum. The brokerage initiated coverage on Bharat Dynamics with a 'neutral' rating and Rs 1,900 target price, nearly 4% below its then market value, citing "lofty valuations."While the brokerage applauded BDL's strong order pipeline and export growth, it noted that the stock's sharp run-up leaves "little room for near-term upside." The brokerage stated it would "look for lower price points to enter the stock," essentially telling investors to wait for a correction before jumping cautious stance is becoming more common among institutional investors. Even seasoned bulls are turning cautious. Harsha Upadhyaya, CIO-Equity at Kotak AMC, who has been a long-term believer in the defence story, admitted: "While valuations are on the higher side, we are not increasing our position at this point of time... however, in the short term yes, the valuations are on the higher side so one needs to have a little bit of caution."Upadhyaya's comments are particularly significant because Kotak AMC has been building defence positions since the government started focusing on indigenization. "We have been very positive on defence for quite some time now, and we started building our positions when the government started to focus on indigenization, and also larger investments continue to happen into defence," he said, making his current caution all the more easing of tensions in the Middle East, particularly between Israel and Iran, had already begun to dampen sentiment, as geopolitical risks that had supported defence stocks started to the near-term turbulence, the structural story remains compelling for those willing to look beyond the current valuation concerns. The macro backdrop, including NATO's 5% defence spending target by 2035 and recent Defence Acquisition Council approvals worth Rs 1 trillion, continues to provide a solid foundation for long-term remains bullish on the sector's long-term prospects, particularly favoring the Defence Electronics segment: "We prefer the Defence Electronics segment, which shall grow 2–3x of defence budget outlay (7–8% CAGR over next five years) powered by the dual engines of ongoing modernisation and higher localisation content for larger programs in the pipeline for Air Force and Navy."Nuvama highlighted that "over the past three decades, India's defence spending growth rate has been among the highest (~8%) across global defence superpowers due to import embargoes and growing export potential." This translates to an estimated $130 billion opportunity over the next five to seven catalysts remain strong despite valuation concerns. Following Operation Sindoor, the government has approved Rs 400 billion for emergency procurement to fast-track military purchases, with the Ministry of Defence recently clearing emergency procurement worth Rs 20 billion for various platforms. Additionally, the Defence AcquisitionCouncil has approved Acceptance of Necessity (AoN) for 10 proposals amounting to Rs 1,050 Securities expects robust order inflows in FY26, with most companies under its coverage guiding for revenue growth of over 15%. Some, like BDL, Solar Industries, and Azad Engineering, have projected even higher growth in the range of 25–30%.Among its top picks, ICICI Securities lists Solar Industries, Astra Microwave, and Azad Engineering in the private space. Among DPSUs, it prefers HAL, BEL, and the valuation challenge remains very real. Nuvama noted that 'Indian defence stocks across the spectrum have re-rated explosively over the past two to three years on the back of improved visibility,' with 'most private defence stocks now trading at a premium to DPSUs, given their higher earnings CAGR and superior return profile.'For retail investors caught in the crossfire, Aamar Deo Singh, Sr. VP – Research at Angel One, offered practical advice: 'Defence stocks have witnessed a spectacular rally, and post the India-Pakistan conflict, this sector has once again taken off, with some stocks hitting record highs and trading at expensive valuations. So, it would be wise not to invest all at once in this sector. Adopting an SIP approach over the long term would deliver better results.'As the dust settles, the defence sector stands at a crossroads — caught between compelling long-term growth drivers and stretched near-term valuations that have even the most bullish investors hitting the pause button.
Time of India
16-07-2025
- Business
- Time of India
Mutual funds dump Rs 1,700 crore in 9 defence stocks. Too expensive to buy or smart exit?
The multi-billion-dollar boom in defence stocks is showing signs of a slowdown, as mutual funds offloaded a staggering Rs 1,700 crore across nine defence stocks last month — a signal that even the smartest money managers believe valuations have turned dangerously expensive after the post-Operation Sindoor rally. All the positive news around increased defence spending following Operation Sindoor , coupled with NATO's defence spending targets creating a double-barrelled opportunity in both domestic and export markets, has now pushed valuations into uncomfortable territory. This has prompted institutional investors to hit the exit button. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Gold Is Surging in 2025 — Smart Traders Are Already In IC Markets Learn More Undo The selling spree was broad-based, with Solar Industries bearing the brunt with outflows of Rs 952 crore, followed by Zen Technologies at Rs 192 crore and Bharat Forge at Rs 165 crore. GRSE saw selling worth Rs 153 crore, while Cochin Shipyard faced outflows of Rs 120 crore, and Mazagon Dock witnessed exits of Rs 96 crore, according to estimates by Prime Database. Total gross selling stood at approximately Rs 1,713 crore. In stark contrast, buying was limited to a meagre Rs 100 crore across seven stocks, including Bharat Dynamics, Unimech, and BEL. Also Read | Defence stocks retreat after up to 84% rally in 3 months. Is it time to book profits or hold? Live Events The sell-off has been reflected in share prices, with the Nifty India Defence Index falling around 4% over the past month. GRSE, Astra Microwave, and Cochin Shipyard have reported double-digit losses, while Solar Industries is down 9% and HAL has shed around 3%, underscoring the broad-based nature of the correction. Valuation concerns are now front and center, as even the sector's most vocal cheerleaders are beginning to pump the brakes. 'We have been avoiding a lot of defence plays... those are the places where we are finding a little bit of overenthusiasm in the marketplace and among market participants,' said Vikas Khemani of Carnelian Asset Management, highlighting the frothy sentiment gripping the sector. Khemani's caution reflects a broader shift in institutional thinking. "It is not that tomorrow if we find an interesting company where the risk-reward is there, we will be buying those segments also, so I am not making a broad judgment that we will not do anything, but it is just that those are the places where we are finding a little bit of overenthusiasm in the marketplace and market participants," he added, suggesting that selectivity, not blanket avoidance, is the new mantra. The warning signs are flashing red across the sector, with execution risks emerging as the new worry. Ambareesh Baliga sounded the alarm on what many investors are overlooking: "In fact, I am finding the valuations are a bit expensive at this point of time... the issue would be on delivery, on execution, which not too many people are talking about. They have got huge orders, but how will they execute? I think that is the big issue." Baliga's concerns are particularly acute for the medium term. "The issue is mostly on the defence side of the market because quite a few of them have got order books full for the next six-eight years, and if they are not able to increase their capacity and deliver, that is where the issue would happen," he warned. Baliga pointed to HAL as an early warning: "We have already seen that happening in HAL to some extent, that we should see across the other companies." This suggests that the order book visibility that investors have been celebrating could become a liability if companies can't scale up operations to meet demand. The recent downgrade of BDL by Motilal Oswal further weighed on sentiment, serving as a wake-up call for investors who had been riding the momentum. The brokerage initiated coverage on Bharat Dynamics with a 'neutral' rating and Rs 1,900 target price, nearly 4% below its then market value, citing "lofty valuations." While the brokerage applauded BDL's strong order pipeline and export growth, it noted that the stock's sharp run-up leaves "little room for near-term upside." The brokerage stated it would "look for lower price points to enter the stock," essentially telling investors to wait for a correction before jumping in. This cautious stance is becoming more common among institutional investors. Even seasoned bulls are turning cautious. Harsha Upadhyaya, CIO-Equity at Kotak AMC, who has been a long-term believer in the defence story, admitted: "While valuations are on the higher side, we are not increasing our position at this point of time... however, in the short term yes, the valuations are on the higher side so one needs to have a little bit of caution." Upadhyaya's comments are particularly significant because Kotak AMC has been building defence positions since the government started focusing on indigenization. "We have been very positive on defence for quite some time now, and we started building our positions when the government started to focus on indigenization, and also larger investments continue to happen into defence," he said, making his current caution all the more noteworthy. The easing of tensions in the Middle East, particularly between Israel and Iran, had already begun to dampen sentiment, as geopolitical risks that had supported defence stocks started to recede. Despite the near-term turbulence, the structural story remains compelling for those willing to look beyond the current valuation concerns. The macro backdrop, including NATO's 5% defence spending target by 2035 and recent Defence Acquisition Council approvals worth Rs 1 trillion, continues to provide a solid foundation for long-term growth. Nuvama remains bullish on the sector's long-term prospects, particularly favoring the Defence Electronics segment: "We prefer the Defence Electronics segment, which shall grow 2–3x of defence budget outlay (7–8% CAGR over next five years) powered by the dual engines of ongoing modernisation and higher localisation content for larger programs in the pipeline for Air Force and Navy." Their top picks in the space are BEL and Data Patterns. Also Read | Defence stocks decline as investors reassess valuations amid profit booking Nuvama highlighted that "over the past three decades, India's defence spending growth rate has been among the highest (~8%) across global defence superpowers due to import embargoes and growing export potential." This translates to an estimated $130 billion opportunity over the next five to seven years. Immediate catalysts remain strong despite valuation concerns. Following Operation Sindoor, the government has approved Rs 400 billion for emergency procurement to fast-track military purchases, with the Ministry of Defence recently clearing emergency procurement worth Rs 20 billion for various platforms. Additionally, the Defence Acquisition Council has approved Acceptance of Necessity (AoN) for 10 proposals amounting to Rs 1,050 billion. ICICI Securities expects robust order inflows in FY26, with most companies under its coverage guiding for revenue growth of over 15%. Some, like BDL, Solar Industries, and Azad Engineering, have projected even higher growth in the range of 25–30%. Among its top picks, ICICI Securities lists Solar Industries, Astra Microwave, and Azad Engineering in the private space. Among DPSUs, it prefers HAL, BEL, and Midhani. However, the valuation challenge remains very real. Nuvama noted that 'Indian defence stocks across the spectrum have re-rated explosively over the past two to three years on the back of improved visibility,' with 'most private defence stocks now trading at a premium to DPSUs, given their higher earnings CAGR and superior return profile.' For retail investors caught in the crossfire, Aamar Deo Singh, Sr. VP – Research at Angel One, offered practical advice: 'Defence stocks have witnessed a spectacular rally, and post the India-Pakistan conflict, this sector has once again taken off, with some stocks hitting record highs and trading at expensive valuations. So, it would be wise not to invest all at once in this sector. Adopting an SIP approach over the long term would deliver better results.' As the dust settles, the defence sector stands at a crossroads — caught between compelling long-term growth drivers and stretched near-term valuations that have even the most bullish investors hitting the pause button.
Time of India
10-07-2025
- Business
- Time of India
Defence stocks retreat after up to 84% rally in 3 months. Is it time to book profits or hold?
India's defence pack was under pressure on Thursday with stocks falling by up to 5% in the day's trade amid weak market sentiments and profit booking by investors. The decline follows a strong rally over the past three months with stocks rallying as much as 84%. The biggest loser of the day was Bharat Dynamics Limited , which fell to the day's low of Rs 1,887.60 on the NSE. The trigger was Motilal Oswal Financial Services (MOFSL) initiating coverage on BDL stock with a 'Neutral' rating and a target price of Rs 1,900, about 4% below its current market value, cautioning that the stock's sharp run-up leaves little room for near-term upside. The other top losers were Garden Reach Shipbuilders (GRSE), Solar Industries , Zen Technologies , Data Patterns (India), Hindustan Aeronautics (HAL), Paras Defence and Space Technologies , Astra Microwave Products , BEML , Cochin Shipyard , Mishra Dhatu Nigam , MTAR Technologies , DCX Systems , Unimech Aerospace and Manufacturing and Dynamatic Technologies , whose share prices slipped between 3.4% and 0.4%. The Nifty India Defence Index was down by over 2% around 1:30 pm. Bull rally Defence stocks have had a strong run on the D-Street for the past three months. The Nifty India defence index has appreciated by over 42% with all 18 stocks riding on the bulls. Defence PSU GRSE is the top gainer with 84% returns and is followed by Data Patterns and Paras Defence which have yielded 81% and 79% returns, respectively in the same period. The rest of the stocks have also given double-digit returns. Cyient, MTAR and HAL are at the bottom of the ladder with returns of 15%, 21% and 22%, respectively. The stocks have risen on account of global geopolitical tensions, including at the Indian doorstep with near near-warlike situation with rival Pakistan, as India vowed to take a deterrent step against terrorist installations following the Pahalgam killings. The positive sentiments also rode on the overall recovery in the domestic stock markets as US President Donald Trump deferred the tariffs to a three-month period. This enabled a recovery in the domestic markets as Nift and BSE Sensex gained over 12% and 13% in the said period. With relative calm, the premium on defence stocks have come down. The recent correction has extended 1-month fall to near 4% at the index level. While defence stocks are known to move faster, valuation concerns remain a constant concern for investors. Defence stocks outlook Notwithstanding the recent correction, domestic brokerage ICICI Securities projects a strong growth trajectory for the domestic companies in FY26, stating that most of the companies under its coverage have guided for >15% revenue growth, driven by robust order inflow after Operation Sindoor. In a report, this brokerage highlighted select names such as Bharat Dynamic Ltd (BDL), Solar Industries and Azad Engineering to likely post even higher growth in the range of 25–30%, the brokerage highlighted in its June defence sector digest. ICICI Securities has also named its top stock picks in the sector, listing Solar Industries, Astra Microwave and Azad Engineering as its top picks in the private space. Among defence public sector undertakings (DPSUs), it prefers Hindustan Aeronautics Ltd (HAL), Bharat Electronics Ltd (BEL) and Midhani.
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Business Standard
10-07-2025
- Business
- Business Standard
Nifty India Defence index slips over 2%; BDL, GRSE, Solar down up to 5%
Defence companies share prices fall Shares of defence companies public as well as private were under pressure, with Nifty India Defence index falling over 2 per cent on the National Stock Exchange (NSE) in Thursday's intra-day trade. Bharat Dynamic (BDL) slipped 5 per cent to ₹1,883.40 on the NSE in intra-day trade. With today's fall, the stock has corrected 10 per cent from its record high level of ₹2,096.60 touched on May 30, 2025. Astra Microwave Products, Garden Reach Shipbuilders & Engineers (GRSE), Solar Industries, Data Patterns (India), Zen Technologies, Paras Defence and Space Technologies, Hindustan Aeronautics, BEML and Bharat Electronics (BEL) were down in the range of 2 per cent to 4 per cent. At 01:44 PM; Nifty India Defence index, the top loser among sectoral indices, was down 2.3 per cent, as compared to 0.41 per cent decline in the Nifty 50. In the past one month, the Defence index has underperformed the market by falling 3.7 per cent, as against 1 per cent rise in the benchmark index. However, in the past three months, Nifty India Defence index has zoomed 42 per cent, as compared to 13.5 per cent rally in Nifty 50. Defence Sector Outlook The Indian defence sector is set to grow rapidly, driven by new technologies like artificial intelligence, robotic and autonomous systems that are improving defence capabilities. Additionally, India has proposed a defense budget of ₹6.81 trillion for 2025-26, reflecting a 9.5 per cent increase from the previous year. Increasing regional tensions are pushing India to focus more on securing its borders and strengthening maritime defence. Defence exports are expected to rise further as India positions itself as a reliable global supplier. Together, these factors are making the sector more competitive and critical to the country's security goals. The Indian government's 'Make in India' and 'Atmanirbhar Bharat' initiatives have emphasised self-reliance in defence manufacturing. Measures such as reserving specific defence items for domestic suppliers and easing FDI norms have significantly boosted local production. Partnerships between government agencies and private enterprises have accelerated progress in defence technologies, including weaponry, ammunition, aerospace systems and electronics, thereby strengthening domestic manufacturing capabilities, Solar Industries said in its FY25 annual report. Meanwhile, analysts expect defence budgets to grow due to various geopolitical conflicts and border tensions. The private defence industry is poised to benefit significantly from NATO's estimated $1.4 trillion defence spending in CY24-35, driven by Europe's rearmament efforts, increased private sector participation in tenders, proven battle-tested capabilities, and a sustained focus on R&D and IP-led manufacturing. Defence companies continued to benefit from the government's push on the indigenization while the geopolitical events during the March quarter led to Emergency Procurement from government which will lead to additional orders for the defence companies, analysts at PL Capital said. Brokerages view on Bharat Dynamics (BDL) Motilal Oswal Financial Services initiated coverage on BDL with a Neutral rating and a target price of ₹ 1,900 based on 42x Sep'27E P/E. The brokerage firm said it liked the business model of BDL and its ability to scale up its revenues and order book in current scenario, however, with fair valuations, analysts said they would look for lower price points to enter the stock. Key risks for the company include a decline or reprioritization of the Indian defense budget, termination of existing contracts or failure to succeed in tendering projects, changes in procurement rules and regulations of the MoD and the government, and supply-chain-related issues, the brokerage firm said. Elara Capital lowered its FY26E EPS by 17 per cent and FY27E EPS by 8 per cent on Akash missile execution from FY26 vs its assumption in FY25, lower-than-expected margin in FY25 with likely less scope for further improvement. The recent conflict highlighted product quality and combat mettle of BDL's product portfolio and would open various export opportunities. On July 1, company report, brokerage firm said it downgrade BDL to Sell from Accumulate, as the current price already factors in all the positives, 400-600bp lower EBITDA margin, and it has outperformed the Nifty in the past three months.
