Following the Prime Minister’s address, Defence contractors including BEL, BDL, and Solar Industries experienced robust market gains. These firms, whose military systems successfully targeted Pakistani air installations, demonstrated significant upward price momentum in trading sessions.
Indian Defence Stocks Soar Following Indo-Pak Air Skirmishes: Investment Perspective
Market Rally After Military Success
Chinese aircraft manufacturer Avic Chengdu’s 62% stock surge following the four-day Indo-Pak aerial confrontation through May 10 captured global attention. Simultaneously, Indian Defence companies reached unprecedented heights after Prime Minister Narendra Modi’s Monday address highlighted the precision capabilities of Indian air Defence systems during the May 7-10 hostilities against Pakistani airbases.
Financial experts, however, advise caution, suggesting that current valuations may already reflect these positive developments, urging investors to conduct thorough research before investing in these securities.
Record-Breaking Performance
Mazagon Dock, specializing in warship and submarine manufacturing, and Bharat Dynamics Ltd (BDL), known for missile guidance systems, achieved historic stock prices on Wednesday. Following suit, radar technology leader Bharat Electronics Ltd (BEL) and drone manufacturer Solar Industries hit all-time highs on Thursday, coinciding with broader market seven-month peaks.
Thursday trading saw BEL climb 1.9% to ₹351 per share while Solar Industries advanced 1.6% to ₹13,950. The previous day, Mazagon Dock surged nearly 5% to reach ₹3,230 per share, with BDL gaining 3% to ₹1,820.90.
Notably, all four Defence stocks closed at record highs on Thursday: BEL finished up 1.8% at ₹350.30; Solar Industries gained 1.1% to ₹13,880; Mazagon Dock strengthened 3% to ₹3,182.40; and BDL rose 2.3% to ₹1,806.50.
Investment Considerations
Nilesh Shah, Managing Director of Kotak Mahindra AMC, suggests that current prices largely incorporate positive developments, emphasizing that future share performance will depend on flawless order execution and operational scaling.
“Indian Defence equipment demonstrated exceptional performance during recent aerial confrontations, potentially attracting international orders,” Shah noted. “However, most positive factors are already reflected in pricing, meaning future gains will require impeccable execution and significant scaling of operations.”
Valuation Concerns
Current valuations substantially exceed historical norms. Mazagon Dock’s price-to-earnings ratio reached 66.27 times on Thursday, compared to its five-year average of 24.83. Similarly, BEL trades at 64.29 times trailing 12-month earnings versus a historical average of 31 times. BDL’s ratio stands at 108 times (historical: 44 times), while Solar Industries commands a remarkable 150 times (historical: 72 times).
The Nifty India Defence index, comprising 18 companies including these Defence manufacturers, currently trades at 55 times trailing twelve-month earnings, substantially higher than its historical average of 38 times, signaling elevated valuations throughout the sector.
Long-Term Outlook
Independent market analyst Ambareesh Baliga attributes recent price movements to both the “Make in India” initiative and impressive corporate earnings. He suggests that market corrections could provide favorable entry points for long-term investors, given the overall positive market sentiment toward the sector.
Several companies reported strong quarterly results. Mazagon Dock’s Q3 FY25 revenue reached ₹3,100 crore with net profit of ₹807 crore, exceeding Bloomberg estimates by 1.6% and 14% respectively. Similarly, BEL posted Q3 FY25 revenue of ₹5,770 crore and net profit of ₹1,311 crore, surpassing Bloomberg projections by 15% and 39% respectively.
