Defence PSU stocks regain mojo, surge up to 25% in 5 sessions; Bharat Dynamics, Garden Reach among top gainers

Defence PSU stocks have made a notable recovery in recent sessions, rebounding strongly after facing prolonged selling pressure. Many of these stocks have surged by as much as 25% in just five trading sessions, outperforming the front-line indices by a considerable margin.

The renewed interest in defence stocks came after they began trading at more attractive levels following a significant correction. This prompted brokerages to issue positive recommendations, citing the sector’s appealing valuations, strong order books, favourable government policies, and promising long-term growth prospects.

In addition, the BJP-led Mahayuti alliance’s resounding victory in the Maharashtra Assembly elections also brought renewed momentum to defence stocks.

Shares of Bharat Dynamics (BEL) surged from ₹926 to ₹1,160 apiece, marking a gain of 25.30% in just five trading sessions. BEML shares climbed 15.3% during the same period, while Hindustan Aeronautics (HAL) and Bharat Electronics saw increases of 14% and 11.60%, respectively.

Shipbuilding stocks also delivered impressive gains, with Garden Reach Shipbuilders rising 24%, Cochin Shipyard jumping 22%, and Mazagon Dock Shipbuilders posting a gain of 13%.

BEL, HAL, Mazagon Dock under JPMorgan’s radar

Global brokerage firm JPMorgan recently initiated coverage on BEL, HAL and Mazagon Dock Shipbuilders, highlighting the recent correction in these stocks as an attractive entry opportunity.

The brokerage has issued an ‘overweight’ recommendation on BEL and HAL, setting target prices of ₹340 and ₹5,135 per share, respectively. For Mazagon Dock, it assigned a ‘neutral’ rating with a target price of ₹4,248 per share.

The brokerage emphasised that India’s defence sector offers a strong runway for structural and value-accretive growth, driven by increasing capital expenditure. Over the next five years, defence spending in India is projected to reach $150 billion, significantly higher than the $85 billion spent in the previous five years.

Additionally, the brokerage highlighted rapidly growing exports, a major focus on domestic manufacturing, high Return on Capital Employed (RoCE), and robust cash flows as key positives for the sector.

The Indian defence sector has undergone significant transformations over the past four years, fueled by the government’s revolutionary steps to establish a robust domestic defence ecosystem. This aligns with the defence ministry’s ambitious targets of achieving 70% self-reliance in weaponry by 2027 and boosting India’s defence exports to $5 billion by 2024–25.

As per recent reports, India’s export footprint now extends to over 85 countries, a milestone made possible through collaborative efforts and policy support. The government’s clearance for exports to Friendly Foreign Countries (FFCs) has further unlocked substantial growth opportunities for Indian defence manufacturers.

Elara Capital upgrades Bharat Dynamics to ‘Buy’

Domestic brokerage firm Elara Capital has also upgraded its rating on Bharat Dynamics to ‘buy’ and revised its target price higher to ₹1,230, citing the company’s robust order pipeline, a shift in customer and product mix, and a strong focus on execution as key growth drivers.

“We raise our target price to ₹1,230 from ₹1,100 on 37x (from 35x) September FY26E P/E, due to this being the last quarter of pain, with H2 slated to see a strong recovery driven by robust execution. We upgrade to Buy from Sell, as BDL is a key beneficiary of a robust order pipeline for domestic as well as export markets, being the only DPSU missile manufacturer, and the stock underperforming the Nifty by 21% for the past three months vs. the Index at 3%,” said the brokerage.

The brokerage expects an earnings CAGR of 48% during FY24-27E with an average ROE of 23% during FY25-27E. While maintaining the positive outlook on the company, it also highlighted potential risks, including a slowdown in defence capital expenditure and order inflows.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.